“No tax on tips” doesn’t add up for working Ohioans

Despite the Trump administration’s claims that “no tax on tips” under H.R. 1 will deliver benefits to low-wage workers in need of tax relief, these provisions leave out a large share of tipped workers and make up less than 1% of that legislation’s tax expenditures^[1]  —  far less than the share spent on tax breaks for the wealthiest.^[2]

There are several limitations that undermine the supposed benefits of “no tax on tips” for tipped workers. First, the size of the tax benefit varies widely by occupation, annual income, and the share of wages earned in tips. The tips deduction is regressive: Workers with the highest tipped wages will see the greatest benefit.^[3] More than a third^[4] of all tipped workers — those with income below the tax-filing threshold — won’t benefit at all.

Of course, only reported tips are eligible for deduction; the IRS and the U.S. Census Bureau’s Center for Economic Studies suggest that only 45-60% of tips are reported in the first place.^[5]

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Compared to the far more expensive, business-friendly deduction they created for “pass-through” income,^[6] the Trump administration and its allies in Congress short-changed tipped workers, setting a lower cap and income limit. And whereas they gave permanent tax cuts to the wealthy,^[7] they opted to terminate “no tax on tips” after just four years.

The table below compares the tax deductions for tipped income and pass-through business income passed in H.R. 1 and shows how the bill prioritizes business owners while giving much less to workers.

The table below illustrates the impacts of H.R. 1’s tax provisions for three tipped workers and one business owner. ^[11]

*Annual income minus standard deduction

**Annual income minus HR 1 deductions (either tips or pass-through business income)

As illustrated, some tipped workers will benefit from “No tax on tips.” With nearly $1,800 in tips, Carol would pay $178 less than with the standard deduction — too little to cover an average monthly electricity bill.^[12]

With nearly $6,700 in tips, Fiona would pay $1,472 less in taxes than if she took the standard deduction — enough to cover her electric bills through mid-summer.^[13]

Chris, who earned no tips but had nearly $200,000 taxable income, would receive a $13,346 tax cut from the pass-through business income deduction alone — more than enough to pay for a full year’s worth of above-average electricity use for himself, Carol, Fiona, and Gary.

Gary could use the help, especially since he won’t benefit at all from “No tax on tips.” Although he made more than $1,800 in tips last year, he is among the 1-in-3 tipped workers paid too little to owe federal income taxes in the first place.

Both Gary and Carol would qualify for some restricted financial support through SNAP and Medicaid. However, H.R. 1 partially covered the cost of its tax cuts for the wealthy by making unprecedented cuts to those and other critical public benefits programs.^[14] Depending on how Ohio responds to these federal funding cuts, Gary, Carol, and many other Ohio workers, tipped and not, will likely lose access to programs that far outweigh the value of their tax cuts.

Policymakers have good options for ensuring tipped workers are taking home their fair share. They could do more to prevent and punish wage theft, which is disproportionately committed against leisure and hospitality workers by their own employers.^[15] They could also eliminate the special permission granted to employers of tipped workers to pay them just $5.50 an hour.^[16]

In large part due to this subminimum wage, tipped workers represent 12 of the 30 lowest-paying occupations in Ohio. Ten of those occupations are in restaurants.^[17] The typical restaurant server – with an annual income of $26,988, including $16,733 in tips^[18] – would see a $1,124 decrease in federal taxes under H.R. 1’s “no tax on tips.” A 2024 Policy Matters analysis found that eliminating the subminimum wage and setting a $15 dollar statewide minimum wage would provide an additional $3,551 per year, on average, for the typical restaurant worker^[19] – far more than the tips deduction would provide. 

“No tax on tips” is an uneven, poorly targeted policy that fails to provide meaningful tax relief to Ohio’s low-wage workers. In reality, the tips deduction is a tactic designed to shift scrutiny away from massive, permanent tax breaks for the wealthy, paid for by severe cuts to social safety net programs that serve low-income households – many of which include tipped workers.

[1] Tax expenditures are the estimated cost – or amount of forfeited tax revenue – of tax cuts under H.R. 1.

[2] “Despite ‘No Tax on Tips,’ Trump’s ‘Beautiful’ Bill Is Bad for Tipped Workers,” Corey Husak, Center for American Progress, July 2025.

[3] See the Tax Policy Center’s 2024 report for a detailed explanation showing how the value of a $5,000 deduction increases as a worker’s income – and corresponding tax bracket – increases.

[4] ‘The “No Tax on Tips Act”: Background on Tipped Workers,” by Ernie Tedeschi, The Budget Lab at Yale, June 2024.

[5] “Tip of the Iceberg: Tip Reporting at U.S. Restaurants, 2005-2018,” U.S. Census Bureau, November 2024.

[6]Explainer on qualified business income deduction, Thomas Reuters Tax.

[7]Section 70105 of Summary: H.R.1 – 119th Congress (2025-2026).

[8]Eligible business entities include partnerships, sole proprietorships, S corporations, and certain trusts or estates.

[9]Joint Committee on Taxation’s revenue estimates, Congress of United States, July 2025.

[10]S Corporations, partnerships, limited liability companies and sole proprietorships are known as “passthrough entities” because their profits are taxed under the individual income tax as they pass through to their owners. See IRS Form 8995-A for a detailed explanation of income limitations for pass-through business income deductions.

[11] Example wages for tipped worker are based on median wages for each respective occupation using Occupational Employment and Wage Statistics (OEWS) data, provided by the Ohio Department of Jobs & Family Services (ODJFS). Share of total income earned in tips for each occupation is determined by estimates from PayScale’s restaurant report and eTip’s report on housekeepers’ earnings. Pass-through business income for the LLC owner was based on the lower income range for the top 10% of business income earners in 2020 (those making $160,000 or more) who claimed the lion’s share of the benefits under Ohio’s LLC loophole, according to a 2020 Policy Matters Ohio report, adjusted to 2025 dollars.

[12] In July 2025, Ohio’s average monthly residential electric bill was $214 according to testimony by Molly Bryden, Policy Matters Ohio, Oct. 8, 2025. 

[13] Although Fiona worked an average of 52 hours per week, she would not benefit from another over-hyped H.R. 1 tax provision, “No tax on overtime,” because her time was split across multiple employers. See IBEW’s No Tax on Overtime Fact Sheet for an overview of H.R. 1’s tax deduction for overtime pay

[14] “Fallout from federal budget cuts will last years,” by Kate Sopko, Policy Matters Ohio, November 2025.

[15] Policy Matters Ohio’s 2022 report found that more than half of wage theft violations from minimum wage nonpayment took place in the leisure and hospitality industry.

[16] “Ohio minimum wage adjusts for inflation to $11.00,” by Heather Smith. Policy Matters Ohio, Dec. 23, 2025.

[17] “Raise the wage,” by Michael Shields, Policy Matters Ohio, April 2024.

[18] Restaurant servers – classified as waiters and waitresses – in Ohio have a median wage of $17 per hour, according to OEWS data provided by the ODJFS. Annual income amounts – total and tipped – were calculated for a waiter or waitress working 30 hours per week and earning 62% of their wages in tips, based on median hours worked and percentage of hourly pay from tips by job type from PayScale’s restaurant report.

[19] “Raise the wage,” by Michael Shields, Policy Matters Ohio, April 2024.