No Tax on Tips, No Tax on Overtime--White House Calculator

[Qs Laptop]

Not here to debate the pros or cons of the no tax on tips or no tax on overtime proposal which has already passed the House and is being debated in the Senate. (This type of discussion is not allowed on ER.ORG)

I would like to provide a link to an online calculator provided by the White House that purports to show the tax savings to a single tax filer that earns tips and/or gets paid regular overtime.

I put in a weekly base pay of $400 per week (this is $10 per hour, 40 hours per week.) I put in $900 per week in tips, figuring a waitperson could handle 3 orders per hour of $50 each and get a 15% tip on each order. I put in $0 for overtime pay premium. Not sure if these numbers are realistic--they seem to be--but feel free to play around with the calculator.

According to the calculator, this worker would save $492 in taxes per month or almost $6,000 per year.

The One, Big, Beautiful Bill

I guess I'm posting this because in today's tech age, this is exactly the sort of transparency I think is sorely needed. You might disagree with the policy but you've got to admit that this is a fairly brilliant "marketing" tool.

 

[Twilo123]

there's only a couple ways to go on all of this...either shrink the deficit through cuts or expand the pie so the deficit becomes smaller as a percentage of the whole. the rest is just marketing as you stated.

 

[Qs Laptop]

there's only a couple ways to go on all of this...either shrink the deficit through cuts or expand the pie so the deficit becomes smaller as a percentage of the whole. the rest is just marketing as you stated.

I sorry, I wasn't talking about the deficit, and I don't want to talk about the deficit.

The marketing I'm referring to is the tool provided to calculate tax savings for workers who receive tips.

Do you think the earning numbers I put in the calculator were in the ballpark?

 

[2HOTinPHX]

So by your calculations you think the average wait person makes 32.50 an hour?

 

[Qs Laptop]

So by your calculations you think the average wait person makes 32.50 an hour?

I don't know. I know here in Minneapolis the minimum wage for restaurant workers is $15 per hour. I believe $10 per hour is realistic for most parts of the country. The federal minimum wage is $7.25 per hour. I don't think anyone would wait tables for that amount so I landed on $10 per hour.

As to the amount of tips, I think having a turnover of 3 tables per hour is reasonable. You can debate whether or not the $50 per table is realistic, I guess, but I can't remember the last time DW and me went out to eat and it wasn't over $50.

Let's hear your numbers.

 

[aja8888]

I don't know. I know here in Minneapolis the minimum wage for restaurant workers is $15 per hour. I believe $10 per hour is realistic for most parts of the country. The federal minimum wage is $7.25 per hour. I don't think anyone would wait tables for that amount so I landed on $10 per hour.

As to the amount of tips, I think having a turnover of 3 tables per hour is reasonable. You can debate whether or not the $50 per table is realistic, I guess, but I can't remember the last time DW and me went out to eat and it wasn't over $50.

Let's hear your numbers.

Wait staff here in Texas make $2.13/hr.

 

[Twilo123]

it all comes down to GDP and the deficit. the rest is all marketing including this. they tried this transparency thing with healthcare pricing a few years back look how that turned out. best of luck and hopefully things are different this time. but going back to all this no tax stuff it's all marketing towards end result of GDP and deficit. If you can't grow the first enough and/or reduce the 2nd enough poof there goes your no tax on stuff.

 

[Twilo123]

what happens if they approve no tax on stuff and economy tanks (ie the above does not happen). i bet you will see a VAT or some kind of tax in the US so fast your head will spin to make up for it.

 

[Qs Laptop]

it all comes down to GDP and the deficit. the rest is all marketing including this. they tried this transparency thing with healthcare pricing a few years back look how that turned out. best of luck and hopefully things are different this time. but going back to all this no tax stuff it's all marketing towards end result of GDP and deficit. If you can't grow the first enough and/or reduce the 2nd enough poof there goes your no tax on stuff.

what happens if they approve no tax on stuff and economy tanks (ie the above does not happen). i bet you will see a VAT or some kind of tax in the US so fast your head will spin to make up for it.

What are you banging on about? The calculator is there for anyone to try. This law has already passed the US House.

 

[Twilo123]

wait staff by me make more than mechanics in a day with tips on crazy prices of everything these days along with automatic 18/20% starter tip options on receipts as well lately.

 

[Twilo123]

What are you banging on about? The calculator is there for anyone to try. This law has already passed the US House.

you labelled it a marketing tool and i agreed and expanded on the issue at large. it's all good. thanks for posting the link.

 

[Qs Laptop]

Wait staff here in Texas make $2.13/hr.

Seriously? What year was this? 1955?

Here are the national estimates of wages for waitpeople according to the US Bureau of Labor Statistics.

Waiters and Waitresses

www.bls.gov

 

[pjigar]

Seriously? What year was this? 1955?

Here are the national estimates of wages for waitpeople according to the US Bureau of Labor Statistics.

View attachment 56147

Waiters and Waitresses

www.bls.gov

Seriously. Here is the complete state by state list:

Minimum Wages for Tipped Employees

www.dol.gov

Over half of the states have less than $4 minimum wage for tipped employees. May be BLS reporting includes tips as part of the wages.

 

[aja8888]

Seriously? What year was this? 1955?

Here are the national estimates of wages for waitpeople according to the US Bureau of Labor Statistics.

View attachment 56147

Waiters and Waitresses

www.bls.gov

See charts above in post #13 for Texas minimum cash wage = $2.13. Now, employers can pay them more, but many do not and tell them tips make up for the low state wage.

 

[cathy63]

Seriously. Here is the complete state by state list:

Minimum Wages for Tipped Employees

www.dol.gov

Over half of the states have less than $4 minimum wage for tipped employees. May be BLS reporting includes tips as part of the wages.

These are two different numbers. Under current law, the tipped employee has to receive at least the full minimum wage when the employer paid wages and tips are added together, so the DOL numbers are the minimum the employer is required to pay, but they do have to make up the difference if the employee doesn't receive enough tips to cover it. The BLS numbers are based on observed compensation from surveys, W-2s, tax returns, etc, so everyone on that chart makes at least their state's full minimum wage. (I don't know if the new bill would still require employers to make up the difference between the tipped minimum wage and actual minimum wage. If not, then some servers will earn less under this new plan.)

The other thing is that for 2025, employers and employees need to pay Social Security tax on $7240 in earnings in order to get the full 4 credits. If there's no SS tax on tips, then the current tipped minimum wage in some states is too low for employees to get full credit. It would need to go up to about $3.62/hr. That would be a huge increase in labor costs in states like TX.

 

[Surewhitey]

I may start working for tips... Wonder how closely they'll be watching this?

 

[imjustawarrior]

I may start working for tips... Wonder how closely they'll be watching this?

Depends on how well you can dance.

 

[all4j]

These are two different numbers. Under current law, the tipped employee has to receive at least the full minimum wage when the employer paid wages and tips are added together, so the DOL numbers are the minimum the employer is required to pay, but they do have to make up the difference if the employee doesn't receive enough tips to cover it. The BLS numbers are based on observed compensation from surveys, W-2s, tax returns, etc, so everyone on that chart makes at least their state's full minimum wage. (I don't know if the new bill would still require employers to make up the difference between the tipped minimum wage and actual minimum wage. If not, then some servers will earn less under this new plan.)

The other thing is that for 2025, employers and employees need to pay Social Security tax on $7240 in earnings in order to get the full 4 credits. If there's no SS tax on tips, then the current tipped minimum wage in some states is too low for employees to get full credit. It would need to go up to about $3.62/hr. That would be a huge increase in labor costs in states like TX.

Important to remember this isn't final, but what came out of the house was really a deduction to be taken after agi calculated. (could be taken with or without itemizing). So, SS tax would continue in that case.

In addition to what cathy points out, employers have various ways to affect this. Many of 'hired' wait staff (ie not owner...) are scheduled as part time, all hours aren't in prime time, etc Depends on the nature of the restaurant of course, but mid-afternoon hours don't pay like Saturday night....

Still tool a step in right direction. Just a start though

 

[pb4uski]

This was a very good analysis.

An Illustrated Guide to Who Really Benefits From ‘No Tax on Tips’

The effect of the tax break is actually quite narrow.

www.nytimes.com

I oppose. Just a political ploy. Poor public policy to tax grant a tax preference to tip income over regular wages.

 

[GrayHare]

Soon corporate CEOs are going to collect $1 in pay and $99 million in tips.

 

[oiseux]

To the OP's original question, I don't think the inputs may be realistic:
* as noted, most restaurants are not bearing tips for 8 hours per day. There is lunch and dinner, and a sparse period. Weekends will be full, with higher rink bills. So overall could be close, but it would have to be a very busy restaurants with a lot of higher bills on weekends. Also, you need to take about two weeks to account for vacation and sick leave, when tips won't be earned.
* In most situations, servers will have to split their tips with part or all of the crew, like the bussers, bartenders, hosts, etc. Laws and regulations vary on this, but this apparently is a common practice.

However, given you inputs, the calculator seems to be off by 2x. After a standard deduction, those levels of income may not break through the 12% tax bracket. (Perhaps the calculator is comparing to the old bracket, but even then I don't think it can account for the difference). (ETA after reading the NYTimes article -- Yes, the payroll taxes are still owed and there is a wage limit). I also believe this sunsets after three years and there is an attempt to restrict the types of jobs that are eligible.

 

[USGrant1962]

This was a very good analysis.

An Illustrated Guide to Who Really Benefits From ‘No Tax on Tips’

The effect of the tax break is actually quite narrow.

www.nytimes.com

I oppose. Just a political ploy. Poor public policy to tax grant a tax preference to tip income over regular wages.

Agree, but that horse left the barn a long time ago. I just did a quick count in my tax software and there are about 30 different tax deductions and almost 50 different tax credits. Adding one or two more is neither here nor there. And that is just personal income taxes.

I'm up for eliminating all of them. Using the tax code to control the public's behavior by penalty/reward is poor public policy, IMO.

 

[pb4uski]

The first step towards getting ourselves out of this mess is to stop digging. That means not adding any more tax preferences like no tax on tips, no tax on overtime and no tax on SS. Other than political pandering there is no good reason for adding any of these. Full stop.

Then, look at existing tax preferences one by one and eliminate those that don't have any good public policy reasoning.

 

[Texas Proud]

Wait staff here in Texas make $2.13/hr.

YES... and live off of tips...

I think your tip amount is low... but I have no knowledge of what it should be... but to give an example, a DD of a friend was a manager of a movie theater where they served food... she quit to become a waitress as they made more money than the manager!!! And there are not a lot of orders to be taken so in a real restaurant they can make more..

But as you say... a good marketing trick...

 

[aja8888]

YES... and live off of tips...

I think your tip amount is low... but I have no knowledge of what it should be... but to give an example, a DD of a friend was a manager of a movie theater where they served food... she quit to become a waitress as they made more money than the manager!!! And there are not a lot of orders to be taken so in a real restaurant they can make more..

But as you say... a good marketing trick...

The $2.13/hour wage I stated is from the tables in a post above.