It’s never easy working for tips. For eight years, from 2014 to 2022, I did just that. I was a waiter at a hotel in Maine, taking orders in the restaurant and bringing customers their food. Some nights I would make $200 or even $300. Other nights I would make half or less. The pandemic has been particularly tough. We couldn’t eat inside: only six outdoor tents and far fewer guests. It was difficult to pay bills for a few years.
I married a colleague I met at work, and before we left the dining room we had two children. I had to bring home the bacon, but it was hard to estimate how much I would make in a given year. And every year, on April 15, I had to make a choice. Do I have to report my tip income on my taxes? Or should I keep it off the books and keep more money in my pocket?
I always made the right choice. But it was tough. The Census Bureau estimates that about a third of tipped income went unreported between 2005 and 2018 — about $8 billion per year. I don’t support it, but I understand it. Many of my colleagues were just starting their careers or had young families. They had a strong incentive to make a bad choice.
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But this year it’s different. Thanks to the tax cut that President Donald Trump signed last year, most tipped income up to $25,000 is not subject to federal taxes for reporting years 2025 through 2028. There is much less incentive for tipped workers to hide much of their income from the government. It’s a victory for working families and the rule of law. Not only do families legally keep more money in their pockets, but with higher reported incomes it’s also easier to qualify for the credit they need to buy a car or a first home.
But the job is not done yet. States still have the authority to tax tips, and just over half do so. As long as the government grabs this money, tipped workers still have a reason to hide a large portion of their income. It would be better for everyone if all states followed President Trump’s example.
Some have shown common sense. Seven states automatically follow federal policy, so when federal taxes ended, so did they. Several others have proactively changed their policies. Notably on the list is Michigan Governor Gretchen Whitmer, who signed a no-tip tax bill into law in October. As a Democrat with likely hopes for higher office, her support for a tax cut is refreshing indeed.
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But other blue state governors — including mine — show no signs of providing relief to workers. Governor Janet Mills has called on the Maine Legislature to bring state law into line with most of what’s in the federal tax cut bill, but she did not rule out taxing tips. From a tax perspective, that makes little sense. Maine would lose an estimated $9.2 million in annual tax revenue, a drop in the bucket in a state that spends $14.5 billion a year.
But while the numbers are small for state revenue, they are big for tipped workers. Every dollar they pay to Augusta is a dollar they cannot spend on their families and future. Continued taxation doesn’t just mean politicians thumbing their noses at the Trump administration. They give the middle finger to employees who want and need relief.
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Gov. Mills isn’t the only one sending that ugly signal. In January, Arizona Governor Katie Hobbs vetoed a bill to align state policy with federal law. Curiously, she announced her veto flanked by signs reading “tax cuts for the middle class now.” Wisconsin Republicans sent a similar bill to Governor Tony Evers shortly after the start of the year. He hasn’t yet indicated what he’ll do, but given his general opposition to state Republicans, a veto seems likely any day.
I wish more governors and state legislators – both Republicans and Democrats – would see the light across the country. Ending tip taxes won’t help me anymore, but it will help millions of workers who face the legacy of inflation and a slowdown in consumer spending. President Trump has done his part to help the tipped employees. Now state leaders must stop suffocating them.
