No-Tax-On-Overtime Proposal By Donald Trump: What You Need To Know
During last year’s presidential campaign, Donald Trump promised to eliminate taxes on tips for workers who rely on them, such as restaurant servers, bartenders, and valets. His opponent, Kamala Harris, also supported this idea for service and hospitality workers. A version of Trump’s proposal was included in the 2024 Republican platform, calling for no taxes on tips for millions of restaurant and hospitality employees. Trump reiterated his commitment to the proposal in January 2025, vowing that workers’ tips would be fully theirs, regardless of their occupation.
Under the Tax Code, tips of $20 or more received by an employee in any month from one job are treated as wages subject to withholding. Cash tips include those received directly from customers, via credit and debit card charges that are distributed to an employee, or via a tip-sharing arrangement. Employees must keep a daily record of tips received and report these to their employer.
Employers must withhold income taxes and the employee’s share of Social Security and Medicare (FICA) taxes based on wages and reported tip income and deposit this amount. Employers also must pay the employer portion of FICA taxes based on an employee’s total wages and tip income.
“I think it could benefit a lot of people,” Ryan Hughes-Svab, who along with her husband, Martin Svab, owns and operates The Misfit Lou restaurant and bar, told USA Today of the policy proposal. “But I also do think when you look at the negative side of it, there could be some of these repercussions. There’s the overtipped culture, and then … bigger companies that are like, ‘Oh, we can save money by paying people less and using this bonus.'”
“Eliminating taxes on tips and ending the $2.13 sub-minimum wage, along with going after big corporations’ price gouging on food, gas, and housing, must be part of an overall programme to tackle the high cost of living for working families,” said the Culinary Union secretary-treasurer, Ted Pappageorge, in a statement on the reintroduction of the Tips Act.
“It’s outrageous that many companies across the country still pay tipped workers as little as $2.13 an hour. The legislation that Congressman Horsford is championing will uplift millions of workers, including many in Nevada, by eliminating federal income taxes on tips and ending the sub-minimum wage.”
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Donald Trump’s proposal to eliminate federal taxes on overtime pay, tips, and Social Security benefits aims to boost economic growth .
Key Aspects of the Proposal:
What are tip taxes?
Tax-Free Tips: Reactions and opinions of experts and stakeholders
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| Batting | R | B |
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| Joe Root* | 19 | 15 |
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Trump’s No-Tax-On-Overtime Proposal: Economic Impact and Industry Reactions
Written by Team Colitco February 26, 2025 6:07 pm
Donald Trump has proposed eliminating federal taxes on overtime pay, tips, and Social Security benefits. This policy aims to increase disposable income and stimulate economic growth.
The proposal, reiterated in January 2025, aligns with Trump’s campaign promise to support workers. The plan seeks to provide financial relief while influencing labour market dynamics.
Figure 1: Trump’s Proposal of No TAX on OVERTIME or TIPS
Trump’s campaign highlights these measures as a strategy to improve financial conditions for millions of workers.
Overtime pay is currently subject to federal income tax, Social Security, and Medicare deductions. The Fair Labor Standards Act (FLSA) mandates time-and-a-half pay for hours beyond 40 per week.
Trump argues that eliminating taxes on overtime earnings will encourage employees to work extra hours. The policy also aims to help businesses fill labour shortages without increasing base wages.
The Committee for a Responsible Federal Budget estimates that eliminating taxes on overtime could reduce federal revenue by $1.7 trillion between 2026 and 2035.
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Employers may need to reassess workforce strategies to balance costs and productivity under the proposed tax exemption.
Trump first announced his no-tax-on-tips plan in June 2024. He emphasised that tips belong fully to workers, regardless of their occupation.
The U.S. Bureau of Labor Statistics reports that 2.24 million restaurant servers depend on tips for income. Current tax laws treat tips as wages if they exceed $20 per month from a single job.
Under the proposal:
Business owners and labour representatives have expressed mixed reactions.
Ryan Hughes-Svab, co-owner of The Misfit Lou restaurant, highlighted potential benefits and risks.
“I think it could benefit a lot of people,” Hughes-Svab told USA Today. “But I also do think when you look at the negative side of it, there could be some of these repercussions.”
Ted Pappageorge, Culinary Union secretary-treasurer, linked the proposal to broader economic concerns.
“Eliminating taxes on tips and ending the $2.13 sub-minimum wage, along with going after big corporations’ price gouging on food, gas, and housing, must be part of an overall programme to tackle the high cost of living for working families,” Pappageorge said in a statement.
The impact on restaurant pricing, payroll management, and employee compensation remains a key consideration for business owners.
Trump pledged to eliminate taxes on Social Security benefits. He stated, “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” on Truth Social in July 2024.
Under current laws:
The Social Security Administration has warned that removing these taxes could impact program solvency. Estimates indicate the system could reach insolvency by 2033, two years earlier than current projections.
Businesses across multiple sectors may need to adjust financial planning if these tax exemptions take effect.
Workforce and Payroll Management:
Labour Market Adjustments:
Economic Effects on Consumer Spending:
The proposals require Congressional approval before implementation. Economic analysts predict extensive debates over federal revenue implications and funding adjustments.
Trump reiterated his commitment to tax exemptions on overtime, tips, and Social Security in January 2025. The policy’s long-term economic impact will depend on legislative developments and business sector responses.
COLITCO LLP accepts no responsibility for any claim, loss or damage as a result of information provided or its accuracy. The information provided on this site is general in nature, not financial product advice, see a financial expert before making any investment decision. Your personal objectives, financial situation or needs have not been taken into consideration. There may be a conflict of interest present with commercial arrangements with companies and/or stock held. COLITCO LLP or an associate may receive a commission for funds raised.
