Will People Tip Less after the New Deduction?

Do you think people will tip less now that tips are not subject to income tax? However, the fine print should be more publicized. $25,000 of tips are not subject to tax and workers still have to make the FICA and Medicare contribution of 7.65%. While many believe it was a windfall, the bill only lessened the tax burden somewhat.

The No Tax on Tips Act allows tipped workers to deduct up to $25,000 in cash tips from their federal income tax for the years 2025–2028, provided they earn less than $160,000 annually (adjusted for inflation).

Our answer to the question of people tipping less is maybe. We see the arguments on both sides.

On the yes side, some tippers could assume that since servers, bartenders, and other tipped workers are keeping more of their tips due to the tax exemption, it reduces the perceived need to tip generously. We can see people who don't like to tip in general reasoning that the tax break essentially "subsidizes" tipped workers’ income, leading them to tip less to "offset" this benefit.

What's more, the National Restaurant Association has indicated that the new tax policy could indeed lead to customers tipping less. The NRA cited "tipping fatigue," whereby some consumers are increasingly frustrated by frequent and high prompts to tip. These include pre-entered tip options on payment screens; some we've seen start at 20% and go up from there. This frustration, combined with economic pressures like a slowing economy (Big Four accounting firm KPMG’s Consumer Pulse report projects a 7% drop in consumer spending on dining out in mid- to late 2025) could encourage patrons to reduce tips, especially if they perceive workers as financially better off due to the tax break.

On the no side, anyone who's aware that the federal tipped minimum wage is $2.13 per hour (unless the hourly tipped wage falls below the full minimum of $7.25) might not be so fast to assume that this is major windfall -- as the question states. The most recent data we could find was a study by the Yale Budget Lab, which found that 37% of tipped workers paid no federal income tax in 2022 due to low earnings. That means the tax exemption probably won't significantly increase the take-home pay for many, if not most, wait people, cocktail servers, bartenders, etc. Since the tax break offers little to no benefit for these workers, patrons, including us, probably will not feel less inclined to tip generously.

By the way, the median wage for restaurant servers is about $32,000 annually and with the $25,000 deduction, the tax saving is modest at best (averaging $1,800/year or $35/week per the Tax Policy Center) and barely noticeable at worst. It's certainly not enough to change the tipping behavior of patrons who know how hard these people work and how little they earn.

Furthermore, cash tips must still be reported to employers for payroll-tax purposes (Social Security and Medicare) and the IRS claims that there's significant underreporting of cash tips. If workers report tips more accurately to claim the deduction, it could actually increase their payroll tax burden, potentially offsetting some of the No Tax benefits.

Meanwhile, tipping is so deeply ingrained in U.S. dining culture that the social norms are unlikely to shift dramatically due to a tax policy that doesn’t directly affect patrons. Consumers will most likely continue tipping based on service quality, social pressure, habit, and/or philosophy, rather than adjusting for workers’ tax status.

And that's what we believe: The new cash-tip exemption won't drastically affect how much people tack onto their dining bills for service.

Now tell us all, what do you believe?

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Comments

O2bnVegas Aug-03-2025

never thought of it

I had never thought of taxes before tipping, and won't change that now.  I'm surprised this is even a question in anyone's mind, but I learn something new every day, especially here.

Candy

David Miller Aug-03-2025

My Opinion

 I only tip for the service provided. This new policy will have no effect on my future tipping.

thebeachbum Aug-03-2025

Agree with David M

Totally agree with David M - "I only tip for the service provided. This new policy will have no effect on my future tipping."

stephen rosol Aug-03-2025

no change for me

not going to change my current habits-- the servers earned the money

grouch Aug-03-2025

tips

since there is no accurate wage scale for those mentioned bar tenders etc there is no way to know how much they make an hour.
it depends on the service i get good higher tip lousy a lower tip 
also depends on where eating at.
also many years ago the irs checked on tips and most of the time if cash not reported.
do not know if this is still in effect but at one time the irs assumed that X per cent was tipped so they assumed there was a tip even if there was none not sure if that is still in effect

Cal Aug-03-2025

Tipping

The "windfall" was really a "slight breeze". After reading
the fine print in the cash-tip exception, the effect is minimal.
I agree with the other comments. Tips should be based on the
service you get.

Bob Aug-03-2025

No Effect

If it's a "Windfall" it's for the server, not me. I'll tip the same. Lately I've been trying to tip in Cash hoping it falls directly to the server's bottom line!  it's between me and the person providing the service! the House, the IRS, the credit card company etc. should stay out of it!

Jon Miller Aug-03-2025

Cash is king

I like Bob's point about tipping in cash whenever possible.   Servers certainly always appreciate it, and I wonder if the new tax law will have a perverse impact on employers to report servers credit card tips more carefully.   Cash is "off the books" for the most part.

Raymond Ray Aug-03-2025

YOU CAN'T DO MATH

Simple fact of the matter. They put the tip amounts at the bottom of the tab is because Americans cannot do math anymore without a calculator. Figuring out 10 and 20% is really easy. Had 10%. Just slide the decimal point over one. You have your 10% to do 20%. Slide the decimal place, one double it and you're there. Not really that hard

Edso Aug-03-2025

Tip in Cash

I'll keep tipping the same as I have in the past, which is at least 20% and even more if the service is outstanding.

SCOTT Aug-03-2025

Cash Tip

Agree with Bob. I have always tipped in cash whenever possible, hoping the money goes directly into the server's pocket. (When paying with credit card, I always put $0 tip and then write in cash tip to let whoever does the receipts know that I'm not a cheap SOB)
  Where I have stopped tipping altogether are the housekeepers. I used to tip $5 a day, but after watching all the picketing on the news for months with them screaming and yelling and then them getting their new contracts, I figured they don't need my help.

Scotski Aug-03-2025

California Restaurant Minimum is $20.00/Hour

Since most restaurants in California have to pay all employees a minimum of $20.00 an hour, I either don't tip at all or reduce my tips.

Robert Rose Aug-03-2025

I don’t know

I have always tipped generously since many of my friends are tipped employees, and I know how close to the poverty line they live.  BUT, my salary is taxed.  So, I’m tipping using money that’s already been taxed.  I don’t know.  I guess that means this policy doesn’t matter to my tipping?  I wish I had a smarter brain 🤣

sunny78 Aug-03-2025

No

"Do you think people will tip less now that tips are not subject to income tax?"

No bearing at all. Like asking will business pay their employees less because the standard deduction rises, the tax brackets change so people pay less taxes? Of course not.

VegasVic14 Aug-03-2025

Nothing will change

I'll continue to tip IN CASH for the service I'm given.

Gene Brown Aug-03-2025

Political Stunt

It is what it is and that’s all that I am going to say and stay away from what it is, bottom line. I’m going to continue to tip at least 20% in cash, good service or not. The Good Lord taking note.

David Miller Aug-03-2025

For What it is Worth

 I don't get it - people accept a job at a low wage and then they think the customers are EXPECTED to not only pay for what they order to eat and drink, but the customers are also EXPECTED to subsidize the employees income with tips. In other nations employers pay a better wage - and tipping is not allowed or encouraged. In America, employers like and enjoy knowing that they can underpay their employees because the populace has been brainwashed that tipping is mandatory, no matter the quality of the service rendered. Great service may deserve a tip, but normal service does not, IMHO. As I stated before, I only tip according to the service I get and it is never more than 15%. Call me cheap, I don't care. The real "cheap" ones are the employers who refuse to pay a better wage.

JohnfromtheEast Aug-04-2025

Tips

The base wage for all workers in Nevada, including those earning tips, is $12.00 a hour.  An employer cannot use tips earned towards the minimum wage.  Therefore, an employee earning tips has a base minimum wage of 12.00 per hour plus tip money. Also something for consideration, the “living” hourly wage for the Las Vegas area is $24.10 a hour.  With overall tips for a server averaging $125.00 a day, a server is definitely dependent on tips.

Llew Aug-04-2025

David

You’re cheap. 😁

JohnfromtheEast Aug-04-2025

Comment ro Liew

The purpose of my comments were to show that the minimum wage did not reflect Nevada minimums, it referenced the only federal. Despite the Nevada minimum wage of $12.00 even for tipped workers, average earnings inclding tips still not come up to a comfortable or in many cases acceptable living standards for tipped workers.  I have not adjusted my tipping and I do not think a service worker would consider me cheap.  Therefore, a statement calling me cheap is inaccurate and unacceptable.  Perhaps if you had read the entire comment that ended "With overall tips for a server averaging $125.00 a day, a server is definitely dependent on tips."

Marshall Harding Aug-09-2025

No tax, lol

Have always tipped generously and try to never include the tip in the bill as that will be taxed. So this new bill has not changed my disposition on tipping. Even tip housekeeping generously on checkout as I do not get daily room service.

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Comments