A North Carolina House bill would reduce income taxes on bartenders and other workers who rely on tipped wages. (Photo: Moe Clark/Colorado Newsline)
A bill to eliminate taxes on tipped wages received a favorable report Tuesday in the state House Commerce and Economic Development Committee.
House Bill 11 would also eliminate taxes on overtime pay and bonuses of up to $2,500. It was referred to the House Finance Committee.
“There are at least 20 other states with bills filed to do exactly the same thing and there’s a couple of bills — one by a Republican and one by a Democrat in the U.S. Congress,” said State Rep. Harry Warren, a Republican from Rowan County and one of the bill’s sponsors.
State Rep. Timothy Reeder, a Pitt County Republican, asked if HB 11 comes with a fiscal note — a document that outlines the potential impact on state revenues. Warren responded that one is being prepared for Finance Committee.
HB 11 appears to have bipartisan support. State Rep. Carla Cunningham, a Democrat from Mecklenburg County, thanked Warren for bringing the bill forward. Cunningham is concerned that some people with intellectual or developmental disabilities are still being taxed on tipped wages.
“They already do not make that much money as the average wage (earner) does,” said Cunningham, referring to federal law allowing employers to pay people with disabilities sub-minimum wages.
In North Carolina, the minimum wage for tipped employees is $2.13 per hour compared to $7.25 per hour for most minimum wage workers. California has the highest minimum wage for tipped employees at $16.50 per hour, according to the U.S. Department of Labor.
Click here to see a U.S. Department of Labor table showing minimum hourly wages for tipped employees by state.
HB 11 falls in line with President Donald Trump’s campaign pledge to eliminate the federal income tax on tipped wages. In late January, Trump told a crowd attending a rally in Las Vegas that he planned to keep that promise, NPR reported.
“In the coming weeks, I’ll be working with Congress to get a bill on my desk that cuts taxes for workers, families, small businesses, and very importantly, keeps my promise,” Trump said. “We’re gonna get it for you — no tax on tips.”
Estimates from the Committee for a Responsible Federal Budget report that Trump’s proposal would cost $150 billion to $250 billion over 10 years.
The Economic Policy Institute (EPI) and other critics of eliminating federal taxes on tipped wages contend its bad policy.
The EPI said the eliminating the tax would:
- Help very few workers and undermine pay increases for many more.
- Expand the use of tipped work—a system rife with discrimination and worker abuse— potentially leading to consumers being asked to tip on virtually every purchase.
- Deplete state and federal budgets and create new avenues of tax avoidance, especially for high earners.