As we approach the 2024 U.S. presidential election, an unexpected bipartisan agreement has surfaced: Vice President Kamala Harris and former President Donald Trump support exempting tips from federal income tax. This policy proposal is gaining traction in key battleground states like Nevada, where service industry workers are a significant voting bloc. As the discussion intensifies, businesses in the hospitality and service industries must adapt to potential changes.
Why the “Tip Tax” Debate is Heating Up
Here are a few reasons why the debate on whether to tax tips as income is such a hot topic in this election:
It’s a Service Economy
With millions of Americans employed in tipped professions, particularly in service-based swing states, tip taxation has caught working Americans’ ears. Tips represent a large portion of income for these workers, making taxation on tips a financial burden. In light of this, both major candidates are positioning themselves as allies to these workers, promising changes that could affect millions of people’s earnings.
Growing Inequality
For years, the taxation of tips has been viewed through the lens of economic inequality. Supporters of eliminating tip taxes argue that service workers, many of whom already earn below the minimum wage, shouldn’t be taxed on tips that often supplement their low base pay. This position is central to Harris’s appeal to labor unions, particularly the powerful Culinary Union in Nevada, which strongly supports the proposal.
On the other hand, eliminating the tax on tips could be seen as unfair to untipped workers who earn the same amount, but enjoy no special tax breaks.
Political Strategy
It may not surprise you that this comes down to cold hard politics. For both Trump and Harris, advocating for the removal of taxes on tips is a strategic move designed to appeal to a wide range of voters, particularly in swing states where the service industry dominates. Trump originally proposed the idea in June, and Harris quickly followed suit, using her relationship with service industry unions to strengthen the claim. Both candidates see this as a winning issue that speaks to the concerns of everyday workers.
What Are the Candidates Proposing?
Donald Trump: Trump first floated the idea of eliminating taxes on tips during a campaign rally in June 2024. He framed it as part of his broader effort to reduce the tax burden on workers and boost take-home pay. Trump’s proposal has strong support among young, non-union service workers, marking a possible inroad with a traditionally Democratic voting base.
Kamala Harris: Harris embraced the idea of eliminating taxes on tips, and also advocated for raising the minimum wage for tipped workers. In many states, tipped workers earn a base pay far below minimum wage. Harris’s stance is aligned with progressive efforts to address wage inequality, and she has garnered strong union support.
Both candidates have yet to fully detail how their policies would work, but the bipartisan appeal is clear: it’s a straightforward way to win the support of millions of service workers.
Why Merchants Should Care
For our member-owners selling COCARD’s POS solutions, it’s useful to know what’s happening with tip taxation. Here’s why merchants need to know we’re paying attention:
Regulatory Compliance
Tax laws surrounding tips are already complicated, requiring businesses to withhold federal income tax, Social Security, and Medicare taxes on tips. COCARD’s POS solutions simplify this process by automatically calculating and withholding the required taxes. Whether or not the tax laws change, merchants need a system that ensures compliance, reducing the risk of penalties.
Adapting to Change
If tax reforms pass, merchants will need to update their tax management processes. Businesses using outdated POS systems could struggle to keep up with the new regulations. This is actually true for any changes at the state, local, or federal level!
COCARD’s flexible and adaptable POS solutions allow merchants to stay ahead of these changes, with real-time updates ensuring they remain compliant with federal and state tax laws.
Saving Time, Saving Money
Managing tips, taxes, and payroll manually is time-consuming and error-prone. A POS system that automates these processes, like COCARD’s, frees up time and reduces costly mistakes, allowing businesses to focus on providing exceptional service instead of grappling with tax calculations.
Where COCARD Comes In
COCARD’s POS solutions are designed to reduce complexity and ensure compliance, making them ideal for an evolving regulatory landscape.
Customizable Tax Settings: Whether a business operates in a state with its own tax rules or is facing changes in federal policy, COCARD’s POS solutions can be customized to comply in any jurisdiction. This flexibility is key for businesses operating in multiple states, looking to integrate payrolls, or planning for future tax reforms.
Real-Time Reporting: Accurate, real-time reporting on tip income and tax withholding is essential for compliance and financial management. COCARD’s POS systems offer detailed reporting features that allow businesses to track tip earnings, withholdings, and employee distributions with ease.
Streamlined Employee Payments: Distributing tips to employees can be complicated, but COCARD’s POS solutions ensure that tips are tracked and allocated accurately. This feature helps businesses avoid disputes and ensures that employees are paid correctly.
COCARD: Changing Times, Steady Leadership
In 2024, the only guarantee is that things will keep changing! At COCARD, we make sure merchants can handle what comes their way.
With the possibility of significant economic changes, from interest rates to tip taxation, now is the perfect time to invest in a POS system that can handle complexity, so you don’t have to. Whether the laws change or remain the same, COCARD’s POS solutions provide the flexibility, compliance, and efficiency businesses need to succeed.
For member-owners looking to bring merchants to COCARD, the message is clear: COCARD’s POS systems can help businesses navigate the shifting regulatory landscape, ensuring they stay compliant while optimizing operations. In a world where tax laws are constantly evolving, having a reliable and adaptable POS system is more important than ever.
Get in touch today to stay ahead of the curve, no matter the road ahead.