\u201cAdd a tip?\u201d Maybe you just don\u2019t want to\u2014but tipped workers can\u2019t afford for you not to. Across the country, service workers are twice as likely to live in poverty as their non-tipped counterparts, yet Congress has now chosen to exempt a portion of their tips from income tax. The One Big Beautiful Bill Act (OBBBA), enacted in 2025, establishes a new \u201cNo Tax on Tips\u201d deduction of up to $25,000 for workers in occupations that the Treasury deems \u201ctraditionally and customarily\u201d tipped. While the measure mirrors earlier proposals, it expands eligibility far beyond the low-wage workers it was ostensibly designed to help.<\/p>\n
This Article examines the distributive and equity implications of OBBBA’s tip deduction and compares it to earlier legislative proposals that sought to eliminate tip taxation. Using a case study of Judy, a single mother earning $30,000 a year as a waitress in Texas, it models how each proposal would affect take-home pay, refundable tax credits, and eligibility for programs such as SNAP, Section 8, and Medicaid. The analysis finds that although framed as a form of poverty relief, OBBBA\u2019s graduated phase-out\u2014from $150,000 to $400,000 for single filers\u2014channels benefits toward middle- and upper-income taxpayers, with negligible gains for the working poor.<\/p>\n
The Article makes three contributions to tax and poverty-law scholarship. First, it situates tip taxation within the long historical arc of wage suppression and racial inequality that has shaped tipped work in the United States. Second, it evaluates how eliminating tax on tips interacts with means-tested programs such as the EITC, CTC, SNAP, and Section 8, showing that the policy may inadvertently reduce eligibility for safety-net benefits. Third, it exposes how OBBBA\u2019s design, particularly its exclusion of ITIN filers and its joint-filing requirement, reinforces systemic inequities for immigrant and mixed-status households. Ultimately, while eliminating the tax on tips might seem like a simple fix, this Article argues that it is a superficial solution to a deeply entrenched problem.<\/p>\n