Unexpected turn from the US government and Social Security: Watch out for tips

The government and the SSA in the United States have surprised with a proposal that could change the way tips are taxed. Backed by Donald Trump and introduced by Republicans in the House of Representatives, the initiative seeks to temporarily eliminate taxes on tips until 2028.

This measure would apply to professions with a history of receiving tips, such as waiters, bartenders, and hotel workers. It would also be subject to approval by the Treasury Department, which would determine the eligible occupations. In addition, only workers earning less than $160,000 per year would qualify for the benefit.

The Latest from the US Government and the SSA on Tips: Goodbye Taxes

It is estimated that workers could save an average of $1,800 per year, although those with lower wages would see an approximate savings of $200. However, the measure has faced criticism for its limited impact, since many workers who receive tips do not earn enough to benefit.

The proposal has caused mixed reactions in the United States. Some restaurant workers and their advocates have replied with little enthusiasm. They have expressed that they would prefer increases in base wages over the elimination of taxes on tips.

This Is What Experts Say: Millions of Americans Paying Attention

Economic experts warn that eliminating taxes on tips could benefit a very small number of workers. According to Yale University, four million people, 3% of the workforce, fall into the category of tipped employees. 

Of them, currently, 37% do not pay federal taxes because their income doesn't reach the annual minimum that would require them to file. In addition, it is warned that some could move into a higher income bracket. 

They could lose other benefits such as the tax credit that currently helps workers and especially low-income families. If the measure is applied to payroll contributions, workers could end up with lower retirement benefits or health coverage.

The Measure Still Needs to Overcome More Debates in Congress

The proposal could also have a significant impact on the SSA. Reducing payroll taxes could affect the lifespan of Social Security and Medicare. According to SSA administrators, it is already expected to be insolvent in 2034.

Although the proposal to eliminate taxes on tips has caused anticipation and could benefit certain workers in the service sector, it has also raised concerns. Especially about its effectiveness, fairness, and fiscal sustainability. The measure still needs to overcome more debates in Congress before its possible implementation.