Taxes on Tips, Overtime and Social Security

[Paine]

Reduce taxes on tips. Remove taxes on SS (paying tax on a tax)

Remove tax benefits for hedge fund managers.

Return personal exemptions ($5000/person) Los sent us into a higher tax bracket - I've had to pay an aggregate of $30,000 more taxes after 2017.)

Reduce Standard deduction from $27,500 to $20,000). This encourages buying a home

Restore tax breaks for truckers, small business, home business/work

Restore tax breaks for disability

Establish a minimum tax for large corporations, individuals making more than $1M/year. Establish a linked fund for Infrastructure, FEMA


"Make the tax laws fair again."

How would making poor people and wealthy people pay no tax on their social security make it more fair? It’s my understanding that the poorest SS beneficiaries are already paying no tax on it. Wealthy SS beneficiaries are taxed to the benefit of the system.

 

[Calheel]

it would be inequitable.

That is really my biggest complaint. Why does the hourly dishwasher pay more in taxes than the tipped waitress? Why is one form of income more deserving of taxation than another?

As best I can tell, the logic behind this is that a tip is more like a gift, not income. It is not mandatory (usually) and therefore shouldn't be taxed like an ordinary hourly wage. But anyone familiar with American business culture knows that tips aren't gifts. They are simply a form of additional payment for goods and services. We don't leave tips out of the goodness of our hearts.

The reality is that most low-wage employees aren't paying federal income tax. But they are paying FICA, and if the no tax policy also applies to FICA, that would be a real problem.

 

[Kraftyheel89]

Thanks for your insight Its a phony yack yack trump is espousing

As is Kamala.

 

[Kraftyheel89]

We need to go to a simple flat tax system. A flat tax rate on ALL income. No gimmicks, no games, no tax dodging, and no tax code that if it were all in one book it would be 10 feet high.

Then deal with the "fairness" or progressive part on the credits and deductions side. Much more for lower earners, phasing out to a certain income where there are 0 credits and deductions beyond that.

Solves everything.

 

[Paine]

We need to go to a simple flat tax system. A flat tax rate on ALL income. No gimmicks, no games, no tax dodging, and no tax code that if it were all in one book it would be 10 feet high.

Then deal with the "fairness" or progressive part on the credits and deductions side. Much more for lower earners, phasing out to a certain income where there are 0 credits and deductions beyond that.

Solves everything.

Literally discussed this earlier in the thread if you’d like to respond to the points further up instead of just reasserting that a flat tax would “solve everything.”

If we just do a flat tax and deal with the rest via deductions and credits, how tf do we fund the government? How much revenue would be lost switching to the flat tax? How is it fair that a billionaire would pay the same rate as a single working mom? How would you address wealth inequality?

Taxes can be made simpler by getting rid of for-profit tax prep services. No need to give the wealthy a break just trying to make things simpler.

 

[UNCatTech]

I have seen taxes in the news recently. One of the things that's getting discussed is whether there should be taxes on tips, overtime and social security. When I read that, I felt like I was back to my childhood, reading about which of these things is not like the other. I don't think there should be taxes on Social Security. I could support no taxes on overtime, but it doesn't make sense to me. Taxes on Tips seems to not fit all for me. If a person makes 2.00 an hour "salary" and $30/hour from tips, why wouldn't that be taxed. If someone flips burgers for 20/hour, why would they pay more taxes than the bartender who is making 35/hour? I'm sure I'm just missing something, but it doesn't seem to make sense on the surface.

I think it is ridiculous. Make the system simpler, not more complicated.

I believe that SS taxes are taken out before calculating you federal and state income, correct? So, they were tax sheltered to begin with, shouldn't they be taxed then? Like before tax 401K are taxed.

From what I've read, the no taxes on tips makes pretty much no difference as the average person collecting tips doesn't report a high enough wage to pay federal taxes to begin with. But I have no idea, just read that. I still think it's sort of gimmicky.

Just raise the standard deduction to a level high enough to help those most in need.

 

[UNCatTech]

We need to go to a simple flat tax system. A flat tax rate on ALL income. No gimmicks, no games, no tax dodging, and no tax code that if it were all in one book it would be 10 feet high.

Then deal with the "fairness" or progressive part on the credits and deductions side. Much more for lower earners, phasing out to a certain income where there are 0 credits and deductions beyond that.

Solves everything.

That seems just as complicated.

Plus, how many people miss tax credits or don't have the money to pay to have their taxes prepared to get the full benefit?

 

[UNCatTech]

Project 2025 calls for a two tiered tax bracket.

Those under $160K adjusted pay 15%, those over pay 30%.

This is an increase on everyone making under $160K a year and a cut for everyone making over $160K a year.

Especially a cut for those who currently hit the top bracket of 37%. They would get a nice 7% cut on all of that income.

 

[UNCatTech]

I don't see why we cannot get rid of all the complexity.

Have a standard deduction great enough to help those most in need, then a progressive curve so one knows exactly how much they own based on their income.

 

[Duke Mu]

How would making poor people and wealthy people pay no tax on their social security make it more fair? It’s my understanding that the poorest SS beneficiaries are already paying no tax on it. Wealthy SS beneficiaries are taxed to the benefit of the system.

SS taxes have a ceiling, but so do benefits. Those that earned less make a higher % on benefits. Those that earned more, receivea substantially lower % of benefits back upon retirement. I'd have no problem capping benefits for the wealthy as well. Easy enough to do.

 

[Duke Mu]

I don't see why we cannot get rid of all the complexity.

Have a standard deduction great enough to help those most in need, then a progressive curve so one knows exactly how much they own based on their income.

The math with reclaiming personal exemptions works out better. The higher standard deduction discourages home ownership and drives up rents.

Just think "how could Trump benefit from a tax system overhaul ?" and you have the 2017 tax bill.

 

[mpaer]

I have to admit taxing Soc Sec benefits is kind of stupid

 

[UNCatTech]

The math with reclaiming personal exemptions works out better. The higher standard deduction discourages home ownership and drives up rents.

Just think "how could Trump benefit from a tax system overhaul ?" and you have the 2017 tax bill.

I don't understand how the higher standard deduction discourages home ownership? Got a link to help me out?

My thinking is that those making under $50K a year are struggling and shouldn't be paying income taxes when they are struggling to live.

I thought that the biggest mistakes of the trump tax overhaul was the cut to corporate and capital gains taxes?

I'm no expert, so don't take this as disagreeing, I just need to better understand the "why" behind what you are writing.

 

[Zoo_View]

Not sure if this is still the case……

In the 1986 tax “reform” law, the restaurant lobby opposed ending “business meals” as an expense that could be deducted. The restaurant lobby was given a choice - disallow the business meal deduction or require waits/bartenders to report at least 8% of gross sales as income.

Guess which one the restaurant lobby agreed to?

Now, 8% sounds a lot less than 15% or 20%.

Consider this:

• Some restaurants deduct the credit card fee expense from the tip amount (there goes 2-3% of the tip)
• Waits “tip” 10% to the bartender
• Waits “tip” 10% to the buses
• Waits “tip” 3-5% to the host
• Waits “tip” 4-5% to the kitchen
• Smart waits buy the kitchen staff a drink 1-2 nights a week (we all effed up as waits and it helped having the kitchen like you)

So, you have $1,000 in sales. In 1986, a REALLY good tip average would have been 16-17%.

So, that’s $160. You’re REQUIRED to report at least $80 in tips (you’re also expected to report 100% of credit card tips - and you couldn’t report 0% of cash tips).

Anyway, let’s call the tip amount $160. You “tip” out 29% of your tips (maybe 33%)……..you have $107-114 dollars after “tipping out”……..and you’re required to report 8% of sales as tips…..and the restaurant doesn’t want your fraud on their records - so, you report 100% of all credit card tips and 8% of cash tips……..you’re pretty damn close to $107-114 in reported tips.

Today? I’d guess 95-99% of tips are on credit cards.

Waits are not making mint off of unreported cash tips.

 

[Geisterfahrer]

We need a rapidly more progressive taxation scheme.

This. Not parsing out ever more exceptions to taxation. All income should be taxed imo.

 

[mpaer]

Not sure if this is still the case……

In the 1986 tax “reform” law, the restaurant lobby opposed ending “business meals” as an expense that could be deducted. The restaurant lobby was given a choice - disallow the business meal deduction or require waits/bartenders to report at least 8% of gross sales as income.

Guess which one the restaurant lobby agreed to?

Now, 8% sounds a lot less than 15% or 20%.

Consider this:

• Some restaurants deduct the credit card fee expense from the tip amount (there goes 2-3% of the tip)
• Waits “tip” 10% to the bartender
• Waits “tip” 10% to the buses
• Waits “tip” 3-5% to the host
• Waits “tip” 4-5% to the kitchen
• Smart waits buy the kitchen staff a drink 1-2 nights a week (we all effed up as waits and it helped having the kitchen like you)

So, you have $1,000 in sales. In 1986, a REALLY good tip average would have been 16-17%.

So, that’s $160. You’re REQUIRED to report at least $80 in tips (you’re also expected to report 100% of credit card tips - and you couldn’t report 0% of cash tips).

Anyway, let’s call the tip amount $160. You “tip” out 29% of your tips (maybe 33%)……..you have $107-114 dollars after “tipping out”……..and you’re required to report 8% of sales as tips…..and the restaurant doesn’t want your fraud on their records - so, you report 100% of all credit card tips and 8% of cash tips……..you’re pretty damn close to $107-114 in reported tips.

Today? I’d guess 95-99% of tips are on credit cards.

Waits are not making mint off of unreported cash tips.

Thanks for the info
I always leave cash tips Maybe thats meaningless

 

[rodoheel]

Average tips in the US equal about $15/hour. That brings an annual income to just over $31k/year. That's just a hair above the threshold for lower income earners in the US.

Why would I want to tax folks riding the line on low income earners who barely cover the margins for surviving in our modern economy? I'm taking pennies on the dollar to barely move the needle. it just doesn't really hold up to a what I would consider smart policy.

But that means we need no change in the tax laws. We don't need to specifically exempt tips from taxation. We just need to ensure that folks below a certain threshold pay no federal income tax. Which is how it already works.

 

[mpaer]

But that means we need no change in the tax laws. We don't need to specifically exempt tips from taxation. We just need to ensure that folks below a certain threshold pay no federal income tax. Which is how it already works.

And maybe some tax changes are needed on the several people each year that fall into the category of
"I am worth X billion more after this tax year..I made X Billion last year..But hey I did not sell any of that stock-so no taxes on that wealth accumulation

 

[Zoo_View]

Thanks for the info
I always leave cash tips Maybe thats meaningless

It’s not meaningless in the restaurants that the schmuck owner deducts the credit card expense from the tip.

 

[Kraftyheel89]

How would making poor people and wealthy people pay no tax on their social security make it more fair? It’s my understanding that the poorest SS beneficiaries are already paying no tax on it. Wealthy SS beneficiaries are taxed to the benefit of the system.

Actually, the way it works is that you count half of SS income. You then add all other income. I don't have the latest 2024 figures in front of me, but for a married couple those that total less than around 34K pay taxes on 0% of SS. The next band is very tight from like 34K to 37K pay taxes on 50% of SS. Above that amount, everyone else pays taxes on 85% of their SS.

And I think my flat tax scenario went way over your head even with my overly simplistic details. I never stated what the flat tax would need to be. It could be a Federal rate of 40%. The focus would be on giving lower earners vast deductions. It basically flips the model and counts ALL income so you don't have real estate guys like Trump and Hedge fund managers paying ridiculous low rates gaming the system.