A bill that was recently introduced by Sen. Ted Cruz (R., Texas) and Rep. Vern Buchanan (R., Fla.), seeking to exclude tips from being taxed (up to a certain level, anyway), has recently been gaining traction, although it has many tax experts scratching their heads. Whether the legislation would blow a giant hole in state and national budgets or spur spending by giving people more disposable income – as the bill’s supporters contend – is not a topic I feel equipped to answer. But I know one thing for sure: If they’re going to offer this exemption to employees, the independent contractor drivers in our industry DESERVE the same.
Unfortunately, in the rush to put the bill together, the trade group the Flex Association says 7.3 million active app-based workers in the U.S. would be left out, while restaurant and casino workers would enjoy the financial windfall. Thankfully, industry advocates from The Transportation Alliance (TTA), The Black Car Fund (BCF), Uber and DoorDash noticed, and have actively been pursuing legislators, pushing them to adjust the bill before it’s voted on in May.
“When I became aware of the situation, I reached out to Uber to learn the details of the pending legislation and the actions they were taking,” explained Ira Goldstein, executive director of the BCF. “We agree that the legislation should rightfully include the independent contractor drivers we provide benefits to, so we contacted The Transportation Alliance (TTA), an organization with lobbyists that operate on a national level, and they joined the fight to right this wrong.”
“If Congress is going to move in the direction of prioritizing this no-tax-on-tips concept, we’re engaged in asking lawmakers to support Uber drivers and UberEats couriers as a fairness issue,” stated Javi Correoso, Uber’s head of federal affairs.
According to an article in The Wall Street Journal about the legislation: “The lawmakers would limit the break to a $25,000 income-tax deduction, which would be available to people even if they don’t itemize deductions. Their bill would deny the break to people exceeding a high-income threshold that is $160,000 this year. The Treasury Department would create a list of traditionally tipped occupations, heading off concerns that lawyers and hedge-fund managers could recharacterize income as tax-free tips. Crucially for Uber and DoorDash, the lawmakers would tie eligibility to reports submitted by employers that break out tips and wages.”
Opponents of the legislation – namely tax experts – have criticized the proposal as “an unprincipled carve-out in the tax base” and highlighted the inequity it would create with other low-wage workers who don’t receive tips, such as janitors and security guards.
“The legislative reality is that lawmakers will be looking to fit this and other ideas into an overall budget that hasn’t been set yet,” The Wall Street Journal reported. “The cost of ‘no tax on tips’ could approach $200 billion over a decade.
In a recent column for Bloomberg Law, tax attorney Andrew Leahey said: “Their argument is logical: Why should tips received by a restaurant server be tax-exempt while those received by a rideshare driver remain taxable? But this question illustrates the incoherence of tax-free tips as a policy. When arbitrary distinctions are injected into the tax code, their effects often ripple. This is why tax policy must be grounded in consistent economic and social principles that can guide its implementation – not reverse-engineered from applause lines at political rallies.”
To be clear, I strongly believe it would be a travesty for this legislation to be passed into law without including our industry’s independent contractors, but Leahey does make some important points. Our industry’s drivers deserve better pay and working conditions but I’m not sure this is the answer. We’ll know soon enough whether this bill becomes law… but if it does, only time will tell what the outcome will be for our nation’s finances, which affects every one of us.
