The Independent Restaurant Coalition, an organization that advocates for independent bars and restaurants, is urging Congress to amend the “No Tax on Tips” provision in the current proposed budget reconciliation package so dishwashers and other back-of-house workers can benefit, the organization said in a press release emailed to Restaurant Dive this week.
This current proposal, which would exempt tips from being taxed as income, has gained bipartisan support and would give tipped workers an average tax cut of $1,260, according to The New York Times.
However, chefs, porters or other workers wouldn't qualify for those benefits because only customer-facing workers can receive tips under the Fair Labor Standards Act. The IRC wants the tax exemption to extend to service charges, which restaurants have increasingly added to customer bills within the last three years to pay for employee health care, wages or operating costs.
“Competitive and transparent compensation and access to affordable child care should be priorities for members of Congress who care about independent restaurants and bars, and their constituents,” the IRC said in the press release.
Under the current tax code, these service charges are taxed as business income, not employee income. Expanding the No Tax on Tips provision to include an exemption for service charges would provide several benefits, IRC claims. This would provide tax relief to low- and middle-income workers, not just tipped staff. It would also allow for service charges to be seen as a legitimate compensation tool and encourage businesses to offer more transparent and equitable pay, the organization said.
In 2023, over 400 independent restaurants and owners across 26 states signed a letter asking Congress to make service charges fairer and tax them similar to tips.
