While the idea of not taxing tip income for Social Security may sound appealing, particularly for those who receive tip income, the impacts are the least beneficial for those taxpayers. Let’s understand what removing Social Security Taxes from tip income means.
- Who receives tip income usually?
Waiters and waitresses.
- Why do we tip?
Because the law allows restaurant owners to underpay wait staff, hoping the customers will make up the difference.
- Who would truly benefit from this possible tax law change?
Business owners benefit the most, and to a much lesser extent, waiters.
- Why are you standing up for wait staff?
Because most of them are lower middle class and will be very dependent on Social Security when they retire.
- So what does this proposed law actually do?
The reduced costs will not get passed on the taxpayers it directly impacts. Instead, the reduced costs benefit the restaurant owners. This shell game is taking money from the workers and giving it to the restaurant owners.
I would like to remind you that “BONUS” to wealthy individuals could be considered TIP INCOME and would therefore be exempt.
Neither workers nor taxpayers would benefit from this move.
I write this post personally in order to educate others on this topic, as it is both complex and misunderstood. Should this tax change go into effect, the impact will felt far and wide, particularly by those who will someday heavily rely on Social Security after retirement.
Randy L. Shank, CPA
Shank & Company, CPA
