Good Article about ongoing Social Security Funding on Market Watch

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I followed the chain back to this: Good Article about ongoing Social Security Funding on Market Watch It was in regard to the proposal to not tax tips. Maybe you need to expand the quote to see what was highlighted.

pb4uski responded to the same post, which is why I replied to both of you in my post after reading your responses to that post about not taxing tips.
I responed to this.

I am sure these is related to Fed Tax, not SS. States would possibly still tax as well (if they have a state income tax). I pointed out that about 10 state DO still tax it and Montana has a bill to stop that.
 
I responed to this.

I am sure these is related to Fed Tax, not SS. States would possibly still tax as well (if they have a state income tax). I pointed out that about 10 state DO still tax it and Montana has a bill to stop that.
OK, you must have misunderstood what he was referring to. But if you refer back to his post and specifically what he highlighted prior to that response, you will see he was talking about the proposal not to tax tips, meaning he thinks the proposal was only for exempting tips from federal tax, not an exemption for SS & state taxes on tips. Oh what the heck, here is the screenshot of that post:

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The comment he put in bold was "There are proposals not to tax tips", so it looks like he was referring to the proposal not to tax tips for all tipped workers and that the proposal applies to federal income tax. So nothing about self employed or the taxation of SS benefits.
Yes. This is what I had meant, no Fed tax on Tips. Not referring to the no tax on SS.

Flieger
 
While, of course, we haven't seen any specifics, generally if one is self employed they pay self employment tax on their self employment income and that income is also subject to federal income tax. So if it Congress decides that tips are not subject to income tax then it follows that they wouldn't be subject to SE taxes as well.

I doubt that they would end up where tips are exempt from federal income tax but are subject to SS or SE taxes.

The resulting loss of SS and SE taxes would put further financial strain on the SS Trust Fund.
 
Yes. This is what I had meant, no Fed tax on Tips. Not referring to the no tax on SS.

Flieger
I looks like you are correct. The proposed legislation for not taxing tips applies the exemption only to the federal income tax as a non-itemized deduction and a $25,000 cap on the deduction. It doesn't apply to payroll taxes, which still need paid by the employer and employee. It doesn't apply to state income taxes, either, but states could make their own exemptions.
 
As a CPA, I see a lot of clients start S Corporations because they think they can avoid most payroll taxes by not taking a much salary ( avoiding payroll taxes) and just paying income tax on that money. The “ reasonable compensation rule” is not enforced enough. It’s an easy revenue grabber
 
I looks like you are correct. The proposed legislation for not taxing tips applies the exemption only to the federal income tax as a non-itemized deduction and a $25,000 cap on the deduction. It doesn't apply to payroll taxes, which still need paid by the employer and employee. It doesn't apply to state income taxes, either, but states could make their own exemptions.
Interesting and unusual carveout. I wonder if some voters viewed "no tax on tips" as not any taxes on tips and not just no federal income taxes.
 
Interesting and unusual carveout. I wonder if some voters viewed "no tax on tips" as not any taxes on tips and not just no federal income taxes.
I viewed it as just that, not Fed tax on tips. Fed gov't doesn't dictate State taxes, and I guess I recognized "tax" and "SS" as two different things as well.

I figured it would be some Deduction item on Fed filing. Also, expected there would be a limit in attempt to avoid misuse. I would be surprised if it does not have an overall income limit or phaseout as well. I guess we will see once a "real" proposal is submitted.

Flieger
 
Interesting and unusual carveout. I wonder if some voters viewed "no tax on tips" as not any taxes on tips and not just no federal income taxes.
One aspect going under the radar a bit is that for service workers that get significant TIP income, FICA and SE taxes are most likely the majority of their federal tax burden. There's lots of lower paid gig workers who pay no Fed income tax at all, but pay FICA and SE.

IOW, giving up the taxability of TIPS for just Fed income tax isn't the windfall it might seem initially.
 
Maybe we should just stop paying social security to all and give them tents and a sleeping bag. Snark...
 
Interesting and unusual carveout. I wonder if some voters viewed "no tax on tips" as not any taxes on tips and not just no federal income taxes.
The phrase “no taxes on tips” is very inclusive. Perhaps the advocates should rephrase it as “no federal income tax on tips” if that is what they mean. It’s hard to discuss these things when people don’t define terms such as “fair share” “victimless crimes” “ highly processed foods” to give a few examples.

I still don’t know why tips should not be taxed. Talk about opening a huge loophole to enrich the tax lawyers.
 
I still don’t know why tips should not be taxed. Talk about opening a huge loophole to enrich the tax lawyers.
I think the idea, like many tax benefits, is to help lower earners. That is primarily where tips are earned. I am sure they will enact that limits the "High Earner" from claiming part of that income as tips if that is what you are worried about.

I am all for this change, in case you can't tell. :cool:

Flieger
 
The real reason for proposing no taxes on tips was to curry political favor in Nevada (and both candidates did so). But the whole notion of not taxing tips is intellectually corrupt.

If as a matter of public policy you want to help low earners then just change the lower tax brackets and rates. That would benefit a broader group of lower income taxpayers no matter how they earn their income. It doesn't seem fair to me that two Americans earning $30,000 a year will be taxed differently if one is a server that gets tips and the other is a factory or warehouse worker who has wages only.
 
If passed: Countdown to all compensation being "tips": 10, 9, 8.....

I'm not in favor of no tax on tips. If we are going to have an income tax, income is income. The bottom half of income filers already pay almost no Federal income tax. Lower income tipped workers are generally in that cohort.

But to be fair, "all compensation being tips" is not what is on the table. On the table is a deduction of the first $25K of tips under a definition of traditional tips and associated occupations. This is on top of the standard deduction even if you don't itemize. It is an income deduction on Form 1040 or such, which in no way affects FICA withholding.

 
Honestly that is about the only reason theses days for tipping. Feel like my food is being held for ransom. I mean why does anyone deserve a tip for just doing their job?
Sounds like you would be more comfortable eating at home.

We're doing a lot more of that ourselves though not just because of tipping. Eating out now costs us almost 2 X (including tip) what it did just 4 years ago. So, we've basically gone from eating out most days to once or twice a month (at most).

The local news is filled with stories of restaurants that have been in business for decades going out of business. They can't afford to pay higher minimum wage and the higher costs of paper products and imported food, etc. all the time complying with new regulations. I'm not suggesting good, bad or indifferent. I'm just saying the the current model for "every day" restaurants isn't viable any longer in most cases. Altering tipping regulations has been the tipping point ( :facepalm: :angel::blush:) in some cases.

I'm amazed. Lots of restaurants which survived Covid are now closing.

Here is a USDOL site which shows current state policy for tipping in light of minimum wage. The differences are dramatic, state to state.


Again, not taking a side but just saying that nothing happens in a vacuum. If you force higher wages, something has to give. Sometimes, it's whole restaurants going out of business but YMMV.
 
I just want to know who these days should be getting a tip and what for? It used to be for taking your order, answering any questions and making recommendations. Bringing your food to the table and checking up that everything is to your liking. Presenting you with the bill and taking payment. Tip worthy IMO.
Now even if you go to lunch at a pizza joint with a buffet salad bar set up you pay in advance, they expect a tip. I dish myself up, take my food to my table and take my plate off the table when done. Tip worthy?
Pick up a burrito to go? Tip worthy?
I dunno know where do we draw the line?
Other places like In and Out and Chick Filet have lines all day long. I don't think they expect tipping there. Why not?
It just confusing what are we tipping for these days and it will only get worse.
 
Eliminating taxes on tips will just change how tips are done. Everyone will start using the food delivery model where you add in the tip up front and drivers decide whether or not they want to do it. "Your roof replacement will be $10,000 plus tip. We suggest a $15,000 tip but you just write in what you feel is fair and we'll let you know if we can fit you into our schedule."
 
Eliminating taxes on tips will just change how tips are done. Everyone will start using the food delivery model where you add in the tip up front and drivers decide whether or not they want to do it. "Your roof replacement will be $10,000 plus tip. We suggest a $15,000 tip but you just write in what you feel is fair and we'll let you know if we can fit you into our schedule."
I was thinking similar. I do receive tips often after doing the j*b. Usually $1-300. If I went to a cost + tip biz plan, I will most likely not make as much in my estimation. I can see some massive loopholes coming if they do it though.

I feel weird accepting tips, personally. I have a nice profit in anything I do. Some people are just nice & generous.
 
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