Washington, D.C. – Sean Kennedy, executive vice president for Public Policy at the National Restaurant Association, released a statement on the introduction of the TIPS Act. The proposed legislation aims to end taxes on tips while also eliminating the tipped wage for servers and bartenders.
The Tipped Income Protection and Support (TIPS) Act seeks to eliminate taxes on tips but connects this tax issue with the elimination of the tip wage. The Association supports bipartisan legislation like the No Tax on Tips Act, which would provide tipped workers an income tax credit for their tips. However, while both issues impact tipped servers and bartenders, one is a tax credit that would put money in their pockets, whereas eliminating the tip wage would damage their earning potential.
“Eliminating the tip credit is a misguided plan that has been rejected in 16 cities and states this year alone because servers and restaurant owners joined together to actively oppose it,” said Kennedy. “They told their stories of how the tip credit enables their successes and demanded the proposals be rejected.”
Kennedy further noted that eliminating the tip credit is detrimental for restaurant owners, tipped workers, and customers alike. "It will limit the earning potential of servers; it will force operators to cut hours and jobs; and it will increase menu prices for consumers," he added. He emphasized that every tipped worker in a restaurant already makes at least minimum wage with median hourly incomes reaching $27.
Kennedy pointed out that there is widespread misunderstanding about how tipping works. Every tipped restaurant employee earns at least their state’s minimum wage through a combination of operator wages and tips. If tips do not equal at least minimum hourly wage, by law, operators must pay the balance.
Research by the National Restaurant Association found full-service restaurant worker incomes average between $19.00 – $41.50 per hour with a median of $27.00 per hour, surpassing state minimum wages across the country.
A recent study by University of California-Irvine economists underlined by Employment Policies Institute (EPI) found no discernible impact from eliminating tip wages on earnings gaps among minority, female, and white male employees.
The tip wage provides financial flexibility to hire more workers and control menu prices in challenging economic environments while increasing servers’ earning potential. Operators should have options regarding compensation models best suited for their businesses including federal tip wages.
On average, small business restaurants operate on thin pre-tax margins between 3%–5%. Eliminating tip wages could shift labor costs up by $10-$13 per hour during times when increased food prices and higher labor costs are already affecting them due to market demand—adding to inflation felt nationwide and potentially leading to higher menu prices or new surcharges.
