Trump proposes making tips tax-free. Here's what it would mean for workers

FILE-A waiter serves food in a busy dining room. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Donald Trump wants to make tips tax-free under a new proposal, although specifics of how the plan will work are unknown.

Trump announced his plan during a June 9 rally in Nevada, a key battleground state with six electoral votes in the race for the White House. 

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Nevada has the highest number of tipped workers in the country, with about 25.8 waiters and waitresses per 1,000 jobs, followed by Hawaii and Florida, according to the Associated Press. 

The U.S. Bureau of Labor Statistics estimates there are 2.24 million waiters and waitresses across the country, with tips making up a large percentage of their income.

How would Trump’s tips plan work?

The Republican presidential frontrunner has not explained whether he wants to exempt tips from just income taxes or the payroll tax too. The payroll tax funds Medicare and Social Security, the AP noted.

For workers, a general exemption may mean more take-home pay. And for the federal government, it could mean bigger budget deficits.

According to the AP, the Committee for a Responsible Federal Budget, a nonpartisan fiscal watchdog group, has estimated that exempting tips from income and payroll taxes would reduce federal revenues by $150 billion to $250 billion over the next 10 years.

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The organization tells the AP that exempting tips from taxation would also lead employers and workers to reclassify wages as tips where possible. The more that happens, the more that federal deficits would increase.

However, one expert explained to the AP that the former president’s proposed plan could negatively affect tipped workers. 

For instance, some patrons could respond to tax-free tips by limiting their gratuity, and it could also lessen efforts in some states to raise the minimum wage for tipped workers to boost their base pay to equal the minimum wage for other workers.

The Associated Press contributed to this report.  This story was reported from Washington, D.C.