Presidential Candidate Platforms Explained: No Tax on Tips
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I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Money rehab.

Okay, it's time to break down another economic proposal of the 2024 presidential race so you know how you would be affected. The next one up is no income tax on tips. And this is a policy that both Vice President Kamala Harris and former President Donald Trump want. I know, they agree. The insanity.

In many places in the U.S., workers in the service industry are paid less than minimum wage because of the promise of tips. So this proposal is aimed at supporting lower-income workers, and that is definitely a good thing. But when the proposal came out, immediately, economists were like, this means that billionaires are going to start redefining their income as tips.

We should all chill out on that one. No matter who the president is, there will probably be limitations on this rule. Tax will probably be applied on tip based income above a certain amount. So no, Jeff Bezos can't claim a billion dollar tip. The billionaire bros have enough tax loopholes anyway. They don't need another one. Harris has already come out and said this. She would come up with a proposal that includes an income limit with, quote,

strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to take advantage of the policy. Trump has yet to make a comparable statement, but it is hard to believe that a proposal like this would make it very far without some kind of income limit. So I'd imagine he'd incorporate some caps. So how will you be affected? Well, if you work in the service industry and you make a majority of income from tips, your take-home pay is going to go up, and that is great.

But how significantly this will actually be for you will depend on how much money you make in tips, obviously, and more interestingly, where you live. NPR notes that restaurant servers in South Carolina would benefit a lot from this policy because in South Carolina, restaurant owners can have reduced minimum wage in exchange for making a lot of their income through tips.

But in my home state of California, where tips make up a smaller portion of income, they benefit less. So this is a complicating factor because if you make $60,000 a year in California and in South Carolina, your take-home pay could look really different even if you make the exact same amount. There's also the question of just how meaningful this really is for lower-income workers. A study from the Budget Lab at Yale University found that only 2.5% of workers would benefit from a no-tax-on-tips policy.

policy. This is in part because of servers whose income is primarily through salary and not tips. But there are two reasons also. First, not all tipped workers need to file taxes. And second, not all tipped workers report all of their taxes.

According to the same study from Yale, more than a third of tipped workers didn't pay income tax in 2022 because they made less than the income required to file a tax return. This year, if you're under 65, you don't need to file a tax return if you make under $13,850. Some economists are saying that this tax cut won't be that big of a deal because the average tax cut for families would be around $1,700.

But I disagree because that is not nothing. That is the amount of the stimulus check after all. But it is going to be meaningful for our national budget. Congress will lose a couple hundred billion dollars over the next 10 years because of this. If you don't work in the service industry and you're already feeling like you're seeing tip machines in way too many places, you are going to be a little peeved.

I think the valid frustration about the rise of the tip machine is that it passes the employer's responsibility to give their employees a livable wage off to the customers. Employers, your employees should be making good money, but that is not on me, boo. That is on you. But no matter who wins the election, the next president, if they stick to their platform, will stop taxing tips.

And so if you're hoping the tip screen will not be spun around in your face as much, that is not going anywhere. For today's tip, you can take straight to the bank. There's another kind of income that you can claim tax-free. You can rent out your house for 14 days and not report that income on your tax return, and it is totally legal. It's called the Augusta Rule, and it's awesome. But you definitely can't push it because if you rent your house out for more than 14 days, you'll owe taxes on every single day your home is rented. And if you rent your house out for more than 14 days,

and you can say goodbye to your tax-free income. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes.

Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.