The United States, long seen as an outlier in its dependence on tipping to compensate service workers, may soon deepen that distinction. As part of President Donald Trump’s sweeping tax and immigration bill, the Senate has approved a provision that would eliminate federal income taxes on tips and overtime wages. The House is expected to vote on the measure before the July 4 holiday, the Washington Post reported.
While the White House is promoting the proposal as a win for low-wage workers, labour advocates and tax experts say it reinforces a uniquely American system in which tips substitute for fair wages — a model largely rejected by much of the world.
Tipping as wage replacement: a global anomaly
In most other countries, tips are either modest bonuses or practically nonexistent. “We continue to be the only country on Earth where tips replace wages completely,” said Saru Jayaraman, president of One Fair Wage. “In most of the world, the idea of tips being a replacement for wages is absurd.”
The US federal tipped minimum wage is just $2.13 per hour — unchanged since 1991. While employers are legally required to make up the difference if tips don’t reach the federal minimum wage of $7.25, enforcement is uneven, and wage theft remains a problem. The Trump-backed proposal would preserve this wage structure while removing federal taxes on tip income — further embedding tipping into the system.
International comparison: tips as extras, not essentials
Countries like Canada, Germany, and France allow or expect tipping but require employers to pay minimum wage regardless of gratuities. In France, service charges are included in menu prices, and tips have been exempt from tax since 2022 to help the hospitality industry recover from COVID-19. In Australia and Scandinavia, tipping is rare, and workers earn a living wage backed by strong labour laws and public benefits.
Meanwhile, tipping is often discouraged or even viewed as disrespectful in parts of Asia, including Japan and China. In Norway and Sweden, any service charges are taxed, and employers are obligated to report them.
US public opinion is shifting
The American public is showing signs of tipping fatigue. A Bankrate survey found that one in three Americans believes tipping culture is “out of control.” Yet the proposed change may only cement it further, encouraging employers to rely on tips to compensate workers rather than raising wages.
Critics argue that exempting tips from taxation won’t significantly benefit the lowest earners, who already pay little to no income tax. According to Yale’s Budget Lab, tipped workers make up fewer than 3% of the US labour force. Howard Gleckman of the Tax Policy Center warned that the change might inadvertently allow higher-income earners in other professions — like lawyers or consultants — to classify some income as “tips” to avoid taxation.
A tax cut with uncertain outcomes
While the Trump administration has framed the move as a tax break for working Americans, the policy’s structure raises equity concerns. With no change to the underlying wage laws, many tipped workers could see little gain, while the practice of tipping in lieu of fair wages becomes even more entrenched.
For now, the US remains one of the only countries where tipping isn’t a gesture — it’s a paycheque. And the proposal to make those tips tax-free may only widen that divide.
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