A drop in college tuition doesn’t look too promising for the near future, but this upcoming election Texas Senator Ron Paul is fighting on the side of many students who work in the service industry, as he introduces the Tax Free Tips Act, a law that would exempt all workers from being taxed on the tips they receive.
The act would excuse all tipped workers from both federal income and payroll taxes, meaning a significant increase in the worker’s paycheck unlike the current law, which Paul says, “punishes workers for doing a superior job.”
This includes any occupation from taxi drivers and hotel employees to bartenders and tour guides. Anyone who gets a tip gets to keep it all. Paul believes in a pat on the back for a good job, instead of a slap on the wrist
Although tips vary depending on the type of service given, in the service industry a 10 percent to 20 percent tip is generally expected to be added to the cost of the total service provided.
For example, if the total cost of the bill at a restaurant comes out to $50 including tax, the server should expect a gratuity of at least five dollars, and at most $10, and maybe even more than that if the service was over the top.
This means that in the food and spirits business, employees are taxed more the higher the tip amount is, which some feel is unfair because it puts more money in the government’s pocket rather than their own, when they were the ones who earned it.
Waiters and waitresses are required to account for all tips that are made during a given work shift. The employees themselves claim tips sometimes and in some cases the restaurant owner will claim the employee’s tips for them to avoid a government audit.
The owner assumes that their workers make at least 10 percent in tips from their total sales for the shift, since that’s the least one expects to get tipped.
Those that work in the business obviously support Paul’s act.
“The reason is because customer service work is different and sometimes it’s harder dealing with people,” said Hannah Kim, a cocktail server in Glendale.
“Those 20 percents actually help a lot in making up for the jerks that only give you 10 percent or less,” Kim said.
Service industry employees in most parts of the Midwest would benefit the most from this proposed act, since the serving wage there is a mere $3.85, less than what a regular minimum wage worker is paid. This wage disparity is unlike California, where food service workers are paid $7.85, the same as minimum wage.
“I received one paycheck for $8, and the rest of the time I didn’t even get one at all,” said Tarah Moya, who worked at a bar called Coyote Ugly. Moya said that she never even expected a paycheck, and that her income consisted of her tips and that’s it.
“If they raised the servers’ wage to minimum wage that would help and they wouldn’t have to worry about it,” Moya said.
Moya raises a good point, although that would really hurt the independent restaurant businesses, said Yvonne Giraldi, owner of Italian restaurant Papa J’s.
“I couldn’t afford to hire servers and pay them at minimum wage,” said Giraldi. “That would mean that I would have to let servers go and that would hurt our service and would be unfair to the customer,” Giraldi said.
The new act, Giraldi said, would be an incentive to work hard all the time, as well as providing extra financial padding for them.
“Since most of my employees work part time they don’t qualify for any benefits like health care and dental, so in that sense I guess that would help my workers,” Giraldi said.
Ron Paul argues that most service sector workers are “young people trying to make money to pay for their education, or single parents struggling to provide for their children,” sometimes working as many as three jobs at one time.
“Helping American’s improve themselves by reducing their taxes will make our country stronger,” Paul said.