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Trump said he wants to exempt tips from taxes. While all types of tipped workers could benefit, hotel housekeepers are one of the largest groups potentially affected.
Former President Donald Trump’s campaign pledge to make workers’ tips tax-exempt could significantly impact the take-home pay of tipped workers. Hotel housekeepers and restaurant workers are potentially the largest affected group in travel.
“For those hotel workers and people that get tips, you’re going to be very happy because when I get to office we are going to not charge taxes on tips,” Trump said at a re-election rally in Las Vegas on June 9.
Many policy proposals are floated during campaigns, but this one gathered early momentum among the Congressional lawmakers who would be needed to pass it.
Senator John Cornyn, a senior Republican party figure and a member of the tax-writing finance committee, said Thursday that the idea should be “on the table,” Roll Call reported.
In a meeting Thursday, key Congressional figures, such as the Democrat who is currently the Senate’s finance chairman, Ron Wyden, and the Republican who chairs the House’s appropriations committee, Tom Cole, said they were also open to considering the proposal, The Hill reported.
Hotel Housekeepers: Potential Impact
A change to how tips are taxed would affect roughly 6 million Americans, Bloomberg noted. Employers reported over $38 billion in tip income to the IRS in 2018, the most recent year for data the Wall Street Journal could find.
All travel segments with tipped workers — including cruise lines, restaurant waiters, airport shuttle services, and tour guides — could be impacted by the proposed legislation, depending on how it is written.
Yet hotel housekeepers appeared to have the most workers potentially affected. Hotel housekeepers earn a median hourly wage of $16, according to the Bureau of Labor Statistics for last year, and they could see the biggest proportional gains from the tax change compared to other tipped workers in the hospitality industry. Many rely on gratuities for a significant portion of their total compensation.
“Housekeepers, who rely heavily on tips to supplement their wages, would see an immediate boost in earnings under this proposal,” said Tim Hentschel, CEO of HotelPlanner.com. “It would put more money directly into the pockets of some of the hardest working and lowest paid employees in the hospitality industry.”
Recent inflation has increased many workers’s pay concerns. PwC’s 2023 Hope & Fears survey indicated that 38% of “not specially trained” employees plan to ask for a pay raise in the coming 12 months.
“I’d say that’s pretty telling that employees like housekeepers and other front-line workers are looking to make more net pay, and non-taxed tips would certainly help with that,” said Jeanelle Johnson, a principal at PwC.
“With a slowdown in leisure demand for hotels as noted in PwC’s Hospitality Directions, tipped staff might not be making as much as they once were. Alleviating taxes on tips would reduce the downward pressure,” Johnson said.
Questions Remain as Proposal Morphs
While businesses would lose the ability to deduct taxes on tips paid, they could also see compliance costs fall.
It’s unclear whether or how Trump’s proposal, if enacted, would apply to Social Security and Medicare taxes, if at all. It’s also unclear if it would affect union contracts. Would some workers lose out on tax credits if more of their tipped income was exempt? Would hotel companies encourage tips to workers who have traditionally not been tipped?
The Trump campaign did not immediately respond to Skift’s requests for details.
Hotel Tech Impact
The proposal to change how tips are taxed would likely affect hotel reporting.
The current system requires tips to be run through merchant systems for accounting and taxation, and hotel companies rely on software to help with processing.
“The potential impact on how tips are taxed is just part of a general trend we are seeing in hotel operations,” said Katherine Grass, CEO of Optii. “Our solutions need to be built with flexibility and dynamic fast roadmaps.”
“With no tax on tips, employers will not have the added cost of accounting and regulations, employees will keep 100% of what they earned, and customers will be excited to see tips go directly to their favorite employees,” Hentschel predicted.
Accommodations Sector Stock Index Performance Year-to-Date
What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.
The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more hotels and short-term rental financial sector performance.
Read the full methodology behind the Skift Travel 200.
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