Does the end of taxes on tips actually help workers?

LAS VEGAS — Hospitality workers in Las Vegas hoped the nationwide “No Tax on Tips” provision would provide relief after a sharp decline in tourism. Results have been mixed.

The tax provision, as part of 2025’s One Big Beautiful Bill Act, allows eligible workers to deduct up to $25,000 of voluntary tips from federal taxes until 2028. The measure was made to give immediate financial relief to and increase take-home pay for service workers such as kitchen waitstaff, beauty salons, bartenders or delivery drivers.

Members of Las Vegas’ powerful Culinary Union, for example, welcome these benefits as tourism took a significant hit last summer. As Nevada relies on tourism and hospitality to survive, it has significantly affected workers, housing and the state’s economy far deeper than other cities nationwide.

Rising unemployment and housing costs have contributed to recent down years in Las Vegas, where unemployment rates are among the country’s highest.

Why are some workers calling the no tax on tips law a letdown?

Ted Pappageorge, the culinary union’s treasurer, said while he welcomes the provision, it hasn’t gone far enough to make a difference to many members. He said deductions apply only to certain types of tips, which excludes automatic gratuities, such as those often added to large parties or banquet services, and phases out for those making $100,000 a year. 

Married couples must file jointly to qualify and dampen the impact of the tax break from $25,000 to $12,500 per person, creating what he considers a “marriage penalty.”

“What this amounted to was a [small tax] credit and it has significant restrictions. This is not of anything of real substance,” Pappageorge told Straight Arrow News. “Some will take advantage of it, but they feel let down by these promises.”

The Culinary Union is actively engaging lawmakers like Nevada Congressman Steven Horsford to amend the legislation nationwide before the next tax season. Horsford has proposed the TIP Improvement Act, which expands upon the tax code on a national level. 

“It’s the main industry here to raise your kids and hopefully own a home. This is a company town,” Pappageorge told SAN. “Trump to his credit put the issue on the table but it is a mixed bag with many flaws.”

The bill includes making the tax changes permanent, fixes the marriage loophole, allows the use of a verified taxpayer identification number so immigrant workers are not excluded, protects gratuity payments and eliminates subminimum wages for tipped workers nationwide.

Nevada is one of only seven states that pay tipped workers beyond the federal sub-minimum wage of $2.13 an hour.

How is declining tourism and automation affecting Las Vegas tip earnings?

“This bill was shaped by direct conversations with the Culinary Union and tipped hospitality workers who know exactly how these tax changes hit their paychecks,” Congressman Horsford said in a statement. “Tips should never substitute for a real, livable wage. We are going to keep pushing until this relief is permanent, fair and truly built around the workers who earn tips every single day.”

Bellman Joe Spica told SAN he was let down by the tax provision, especially in the wake of declining tourism. On a good day, he can make $100 in tips; on a slow day, it can be less than $30, he said.

“The harder part is that we’re getting less people, and the people coming are tipping way less,” Spica said. “The middle class is getting squeezed really hard, and when they feel it, we feel it.”

According to the Las Vegas Convention and Visitors Authority (LVCVA), tourism dropped 7.5% in 2025, the lowest since 2021 during the height of the COVID-19 pandemic. Some local economic experts predict the city will make a comeback; however, recent LVCVA data show visitor and room occupancy have improved from last year.

“I think it’s fair to say we lost a huge swatch of the working class. The prices are just skyrocketing,” Spica told SAN. “Every good we need to survive is going up. When we’re feeling the squeeze, they do too. And the trips to Vegas go with it.”

In addition to fewer visitors, Spica says his and others’ jobs progress toward automation also lessens tip earnings as kiosks, locked luggage-storage units and other options become available. According to one study, more than 90% of hospitality jobs on the Strip are at risk of automation.

“Fewer interactions with customers can mean fewer opportunities to earn tips,” Spica said. “There’s no way a robot can take my job, they can’t handle the service or questions. But I think we’re dangerously approaching this cliff where automation is around the corner.”

Will raising the minimum wage for tipped workers help or hurt restaurants?

While Las Vegas stakeholders believe in raising the minimum wage for tipped workers, the reaction is unfolding differently in other parts of the country. In Chicago, the Illinois Restaurant Association has pushed back against Mayor Brandon Johnson’s veto to raise the tipped minimum wage to match the city’s $16 an hour wage. 

Sam Toia, the association’s president, said that tipped workers — who make $12.62 an hour — already earn competitive pay when tips are included and that higher wages could force restaurants to cut staff, raise prices or close altogether.

Toia specifically cited Washington, D.C. Initiative 82 as a warning. The initiative, which raised the city’s subminimum wage from $5.32 an hour to the city’s standard $17.50, gutted the restaurant industry, causing as many as 4,000 workers to lose their jobs and 70% of restaurants to cut worker hours.

According to Toia and the Illinois Restaurant Association, 86% of tipped restaurant servers in Chicago believe they will earn less if the tip credit is eliminated; 87% of tipped employees believe the current system works and does not need to be changed.

“Everytime you raise the minimum wage or do away with tip wages, the restaurants have to raise menu questions. You lose some customers because they can’t afford to eat,” Toia said. “They start cutting hours as a result, and they shrink their menu and close their restaurants earlier. This will devastate the restaurant scene in this city.”

Supporters of wage increases, however, say relying on tips leaves workers vulnerable to economic swings. Cass Shum, an associate professor at the University of Nevada, Las Vegas who studies workplace conditions in hospitality, said the policy’s limitations highlight the instability of tipping as a major source of income.

“If you have a week of bad days, you don’t know how you’re going to pay for food or housing,” she said. “That affects not just financial stability, but performance and well-being.”

Shum has argued that Americans are growing fed up with tipping altogether. A 2023 Pew Research Center study found that more than 72% of Americans tip in more place than they did five years prior, with more Americans opposing (40%) than favoring (24%) businesses suggesting tip amounts to their customers.

Tip-based systems can widen and reinforce current racial biases as well, Shum said. Studies have shown workers of color earn less in tips than white workers do, and women who work service jobs like bartending endure and are expected to accept sexual harassment for higher tips.

Like Spica, she also said the increase in automation will lead to workers tipping less or that the tips would not go to human workers.

“It is better to guarantee a stable livable income rather than rely on the generosity of customers,” Shum told SAN. “Change is always scary but it doesn’t mean the current system is acceptable.“

Ella Rae Greene, Editor In Chief