Restaurant Coalition Pushes for Broader Tax Relief

The Independent Restaurant Coalition is urging Congress to expand the proposed “No Tax on Tips” legislation to include service charges and benefit all restaurant workers, not just front-of-house staff who receive traditional tips.

The coalition argues the current proposal would leave behind dishwashers, chefs, porters and other back-of-house workers who would still be taxed on their wages. More than 400 restaurant operators signed a letter highlighting the need for tax benefits to include kitchen staff.

The “No Tax on Tips” provision would exempt tips from being taxed as income and give tipped workers an average tax cut of $1,260. The Senate passed the bipartisan No Tax on Tips Act by unanimous vote on May 20, establishing a tax deduction of up to $25,000 annually for employees earning $160,000 or less who work in occupations that customarily receive tips.

However, only customer-facing workers can receive tips under the Fair Labor Standards Act, meaning chefs, porters and other workers wouldn’t qualify for benefits.

The coalition wants the tax exemption extended 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. Under current tax code, these service charges are taxed as business income, not employee income.

Chef Cheetie Kumar, co-owner of Ajja restaurant in Raleigh, N.C., said the legislation would “widen the gap amongst the people on our teams and create new problems.” The coalition states the proposal “will ultimately do more harm than good to the over 11 million people who rely on restaurants and bars for their livelihood.”

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.

The National Restaurant Association supports the current legislation, with Executive Vice President Sean Kennedy saying it would “put cash back in the pocket of a significant number of workers” and help operators recruit industry workforce.