They say what happens in Vegas stays in Vegas — but Donald Trump’s much-hyped “no tax on tips” promise is proving to have ripple effects far beyond Sin City.
The former president first unveiled the idea during a 2024 campaign rally in Las Vegas — a city that thrives on hospitality and tipped labor — calling it a “game-changer” for service workers. Later folded into his sweeping One Big Beautiful Bill Act (OBBBA), the measure was signed into law earlier this year and will take effect in the 2026 tax season.
But as the details emerge, many in the hospitality industry are learning that the law doesn’t quite deliver what was promised. Instead of truly eliminating taxes on tips, the policy provides a limited deduction that leaves many tipped workers — particularly low-income earners — with little to no benefit.
More Complicated Than It Sounds
On the surface, “no tax on tips” sounds like a win for the country’s roughly 4 million tipped workers. But in practice, the law allows a tax deduction of up to $25,000 in tips — not complete tax exemption. And even then, only certain types of workers in specific sectors qualify, such as restaurant and hotel staff, home repair workers, and wellness service providers.
Tips will still be subject to Social Security and Medicare taxes, and workers making more than $150,000 (or $300,000 for couples) will see the benefit phase out. Additionally, gratuities automatically added to bills — a common practice in restaurants — aren’t eligible for the deduction.
“It’s a little bit misleading to say ‘no tax on tips,’” said University of Nevada law professor Francine Lipman. “There are several conditions that have to be met before a worker can qualify.”
Many Workers Left Out
The biggest issue is that the law doesn’t help the lowest-income tipped workers — the very people it claims to support. According to The Budget Lab, as of 2023, 37% of tipped workers made so little that they paid no federal income tax at all. For them, a deduction is meaningless.
The Tax Policy Center estimates that only about 60% of tipped worker households will benefit from the law, with an average annual tax savings of around $1,800. But for those earning less than $33,000 per year, the savings could be as low as $10, with an average closer to $450.
In the restaurant industry specifically, advocacy group One Fair Wage found that 66% of tipped restaurant workers would not benefit at all because their incomes are too low to be taxed in the first place.
Debra Jeffries, a local Las Vegas server and Culinary Workers Union member, called the policy “a bait and switch from the campaign days.” Ted Pappageorge, the union’s Secretary-Treasurer, added, “It’s a slap in the face to workers.”
Unintended Consequences
Labor advocates also warn that the law may have a downward pressure effect on wages. Employers, aware that workers are saving money on taxes, may feel justified in offering lower base wages — shrinking total compensation rather than enhancing it.
“If there’s some level of ultimate take-home pay that workers know they will accept … the wages needed to meet that level will have just gone down,” said Heidi Shierholz, president of the Economic Policy Institute.
Adding to the controversy is the fact that the bill received strong backing from the National Restaurant Association — a powerful industry lobby group that some labor advocates have labeled “the other NRA.” Critics say that’s a red flag, suggesting the law is more business-friendly than worker-focused.
Benefit Cuts Overshadow Tax Breaks
Perhaps the most damaging fallout of the OBBBA, however, comes from cuts to Medicaid and SNAP (food stamps) — programs relied on heavily by tipped workers.
According to the Center for American Progress, the loss of SNAP benefits under the OBBBA will cancel out or outweigh the tax savings for many. For instance, a single mother hairdresser earning $10,000 in tips might save $1,007 in taxes — but lose $1,620 in SNAP benefits, putting her $600 in the red.
Medicaid cuts are even more severe. One Fair Wage estimates that by 2034, the bill will remove 1.2 million tipped restaurant workers or positions from Medicaid — about 45% of the workforce in that sector. The organization concluded that the number of workers who lose Medicaid coverage under the law will outnumber those who gain from the tip deduction by about 50,000.
A Short-Term Law With Long-Term Impact
Like Trump’s companion proposal — the “no tax on overtime” measure — the tip deduction policy is temporary, scheduled to expire in 2028. But for workers already struggling amid a tourism downturn and rising living costs, the short-lived benefit offers little comfort.
What began as a flashy campaign promise in Vegas is turning out, in the eyes of many workers, to be a bluff — one that leaves millions of tipped Americans holding the bag.
Read full article here: MSN
