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An Illustrated Guide to Who Really Benefits From ‘No Tax on Tips’

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An Illustrated Guide to Who Really Benefits From ‘No Tax on Tips’

There’s no question that President Trump’s proposal to stop taxing tips has broad appeal. It’s popular in polling, lawmakers in both parties support it, and now a version of the idea is on its way to becoming law.

But the effect of the policy would actually be quite narrow. About 3 percent of American workers receive tips, but about a third of those employees would not see a gain from the change.

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That’s because of the way Republicans structured the policy in the tax legislation they passed through the House recently. Here’s who would benefit under their plan — and who wouldn’t.

The proposal would leave out workers who are not tipped.

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The tax break is good news for people in industries like dining, where tips are a big part of worker pay. But it also means that two employees making the same amount, one a bartender and one a retail salesperson, could soon face very different tax bills.

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These two workers each make $40,000, but the tipped worker would owe a lot less in taxes.

Note: Potential additional effects of tax credits or other less common deductions are not included.

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The tax exemption would create a huge incentive for more people to try to earn tips. The Republican legislation lays out some ground rules, tasking the Treasury Department to limit the tax break to jobs in which workers have traditionally received tips. This could become the subject of intense lobbying, as companies try to convince the government that their employees deserve the tax break. Uber and DoorDash have already pushed to make sure their drivers can qualify for tax-free tips.

Many of the lowest-earning tipped workers wouldn’t benefit much, or at all.

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Another obstacle to benefiting from the tax break is the way income is taxed in America. In general, before they pay taxes, Americans subtract deductions from their income, and then the government assesses tax on that smaller amount of money.

Everyone can take the standard deduction, which would be worth $16,000 for individuals and $32,000 for married couples this year under the Republican tax bill. “No tax on tips” would take the form of a deduction people can claim on top of the standard deduction, shrinking their taxable income even more.

But for a tipped worker who doesn’t make much more than the standard deduction — say a college student who waits tables over the summer — the ability to claim an additional deduction would not generate much in tax savings. Someone making less than the standard deduction would have no taxable income to begin with.

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The policy would save this low-wage waiter a small amount.

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Note: Potential additional effects of tax credits or other less common deductions are not included.

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It’s important to note that the tips exemption applies only to the federal income tax. Workers would still owe payroll taxes, like the 6.2 percent Social Security tax, on their tipped income. They may also owe state income taxes on their tips.

For many low-income Americans, payroll taxes, rather than the income tax, are the biggest taxes they pay. Roughly 37 percent of tipped workers already don’t owe any federal income tax, according to an estimate from the Budget Lab at Yale.

Others wouldn’t gain because other benefits already eliminate their tax burden.

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There are other tax breaks that could eliminate a worker’s tax liability before “no tax on tips” comes into the picture. For example, a full-time Uber or Lyft driver who can take advantage of the mileage deduction, which increases with every mile driven, may not have much use for another tax break.

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The policy wouldn’t make a difference for this ride-share driver.

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Note: Business deductions included are for qualified business income and business use of a car. The amounts differ under a “no tax on tips” policy because the deductions would interact. Potential additional effects of tax credits or other less common deductions are not included.

An exception to this would be tax benefits that are “refundable.” These are tax credits, like the earned- income tax credit, that give money to Americans even if they don’t owe anything in income tax. So these tax credits can become cash payments to low-income Americans. Because of that, workers could conceivably use the tips deduction to reduce their tax bills to zero and still receive the same benefit from a refundable tax credit.

The more money someone makes, the bigger the benefit.

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The deduction would be most meaningful for those who make enough to owe a fair amount in income taxes. A typical tax cut for someone earning enough to benefit from the plan could be worth roughly $1,800.

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This hairdresser would save the typical amount among those who would benefit.

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Note: Potential additional effects of tax credits or other less common deductions are not included.

This dynamic is a microcosm of how cuts to income taxes often work: The more money you make, the more you pay in tax and therefore the more you save from a tax cut. In this case, though, your benefit would depend both on how much you make and what share of your income comes in the form of tips.

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This Las Vegas blackjack dealer would save a lot based on his significant tips.

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Note: Potential additional effects of tax credits or other less common deductions are not included. Figures are rounded.

This would be true up to a point. The Republican legislation would bar tipped workers making more than $160,000 from claiming the break. (That level would apply for this year and increase over time.)

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The cut-off is a stark one. A tipped worker making $160,001 would, under the bill, receive nothing, potentially encouraging people to try to lower their earnings to claim the tax break. Making that extra dollar could mean thousands in additional taxes.

“No tax on tips” could end up as a short-lived experiment. In the House-passed bill, the policy would last only through 2028, though the legislation could change in the Senate.

Many tax-policy experts are rooting for the demise of the deduction, which they see as another potential hole in a tax system so strewn with carve-outs that it is often compared to Swiss cheese. In general, they would prefer a system that charges roughly the same tax on workers with roughly the same earnings, rather than creating a tax advantage for certain types of work.

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“It’s the exact opposite of the general principles that tax policy purists advocate for,” said Joseph Rosenberg, a senior fellow at the Urban Institute.

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About the data

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Illustrated examples were constructed using data from a summary of the House Republican bill (proposed tips policy, standard deductions and tax rates); the Bureau of Labor Statistics (typical wages by occupation); companies and industry groups (estimated typical tip shares); and analyses from the Budget Lab at Yale and the Tax Policy Center (distributional effects of the policy). Workers in all examples have a single tax-filing status.

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Video: The Battle for Warner Bros. Discovery

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Video: The Battle for Warner Bros. Discovery

new video loaded: The Battle for Warner Bros. Discovery

Nicole Sperling, a Times reporter who covers Hollywood and the streaming revolution, breaks down the competing bids from Netflix and Paramount to buy Warner Bros. Discovery.

By Nicole Sperling, Edward Vega, Laura Salaberry, Jon Hazell and Chris Orr

December 9, 2025

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HBO Max subscriber sues Netflix to halt merger

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HBO Max subscriber sues Netflix to halt merger

Let the legal battle begin.

On Monday, a Las Vegas-based HBO Max subscriber sued Netflix over concerns that the streamer’s plans to buy some of Warner Bros. Discovery’s assets would create an anti-competitive environment in the entertainment industry and raise subscription prices.

Netflix said last week it agreed to buy Warner Bros. Discovery’s film and TV business, its Burbank lot, HBO and the HBO Max streaming service for $27.75 a share or $72 billion. It also agreed to take on more than $10 billion of Warner Bros.’ debt, creating a deal value of $82.7 billion.

Michelle Fendelander alleges in her lawsuit that if Netflix’s deal were to go through, it would decrease competition in the subscription streaming market. She is asking the court to issue an injunction to prevent the merger from happening or issue a remedy for the anti-competitive effects.

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“American consumers — including SVOD purchasers like Plaintiff, an HBO Max subscriber — will bear the brunt of this decreased competition, paying increased prices and receiving degraded and diminished services for their money,” according to Fendelander’s lawsuit, which is seeking class-action status. The lawsuit was filed in a U.S. District Court in San Jose.

Netflix on Tuesday called the lawsuit “meritless” and “merely an attempt by the plaintiffs bar to leverage all the attention on the deal.”

The Los Gatos, Calif.,-based streamer is long seen as the winner of the subscription streaming wars, boosted by having successfully entered the streaming content space earlier than rivals and for its superior recommendation technology. By buying Warner Bros. Discovery’s assets, Netflix would gain access to more franchises and characters, including Batman, “Game of Thrones” and Harry Potter. Netflix said it plans to keep Warner Bros.’ commitments to bringing its movies to theaters.

But Fendelander and some industry observers are concerned that Netflix owning one of its streaming rivals will hurt the entertainment industry because it means less competition.

“The elimination of this rivalry is likely to reduce overall content output, diminish the diversity and quality of available content, and narrow the spectrum of creative voices appearing on major streaming platforms,” according to the lawsuit by Fendelander, who has never been a Netflix subscriber.

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Streamers over the years have steadily raised their prices, and some analysts said they would not be surprised if subscription prices continued to go up.

Netflix executives said they believe their deal to acquire WBD’s assets will benefit key stakeholders.

“It’s going to mean more options for consumers,” said Netflix Co-CEO Greg Peters on a call with investors last Friday. “It’s going to be more opportunities for creators, more value for our shareholders. Together, we’ve got the chance to bring great stories, cutting edge innovation and more choice to audiences everywhere.”

Peters also pointed out at a UBS conference on Monday that Netflix combined with the assets it is acquiring from Warner Bros. Discovery would still amount to a smaller share of U.S. TV viewing than YouTube.

Whether the deal will get over the finish line remains to be seen, although Netflix executives say they believe it will. On Monday, Paramount said it would directly appeal to shareholders to offer an alternative bid.

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Federal judge strikes down Trump’s order blocking development of wind energy

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Federal judge strikes down Trump’s order blocking development of wind energy

A federal judge on Monday struck down the Trump administration’s ban on federal permits for wind energy projects in what supporters said was an important victory for the embattled industry.

President Trump issued the ban on his first day back in office through an executive order that called for the temporary withdrawal of nearly all federal land and waters from new or renewed wind-energy leasing. The president said such leases “may lead to grave harm” including negative effects on national security, transportation and commercial interests, among other justifications.

U.S. District Judge Patti B. Saris, for the District of Massachusetts, ruled that the ban is “arbitrary and capricious and contrary to law,” and said the concern about “grave harm” was insufficient to justify the immense scope of a moratorium on all wind energy.

The challenge was brought by attorneys general in 17 states, including California, and Washington.

In it, they argued that halting federal wind permits created an “existential threat” to the wind industry that could erase billions of dollars in investments and tens of thousands of jobs.

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“A court has agreed with California and our sister states nationwide: The Trump Administration’s attempt to thwart states’ efforts to make energy more clean, reliable, and affordable for our residents is unlawful and cannot stand,” California Atty. Gen. Rob Bonta said in a statement. “The Trump Administration seems intent on raising costs on American families at every juncture — and California is equally committed to challenging every one of its illegal attempts to make life more expensive for Californians.”

At least seven major offshore wind projects were paused as a result of the federal permitting ban, according to the nonprofit Natural Resources Defense Council, plus several more that were in early phases of development.

“This ban on wind projects was illegal, as this court has now declared. The administration should use this as a wake-up call, stop its illegal actions and get out of the way of the expansion of renewable energy,” said Kit Kennedy, the council’s managing director for power, in a statement.

The lawsuit noted the president’s executive order was issued the same day as his National Energy Emergency Declaration, which encouraged domestic energy development not tied to wind and other renewables. The president has heavily supported fossil fuel production including oil, gas and coal.

In a statement to The Times, White House spokeswoman Taylor Rogers said offshore wind projects were given “unfair, preferential treatment” under the Biden administration while the rest of the energy industry was “hindered by burdensome regulations.”

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“President Trump’s day one executive order instructed agencies to review leases and permitting practices for wind projects with consideration for our country’s growing demands for reliable energy, effects on energy costs for American families, the importance of marine life and fishing industry, and the impacts on ocean currents and wind patterns,” Rogers said. “President Trump has ended Joe Biden’s war on American energy and unleashed America’s energy dominance to protect our economic and national security.”

California has vowed to stay the course on offshore wind despite the federal challenges.

The state has an ambitious goal of 25 gigawatts of floating offshore wind energy by 2045, by which point California officials say offshore wind could represent 10% to 15% of the Golden State’s energy portfolio. Five ocean leases have already been granted to energy companies off Humboldt County and Morro Bay.

In August, the Trump administration said it was cutting $679 million for “doomed” offshore wind projects, including $427 million that had been earmarked for California.

Ted Kelly, director and lead counsel of U.S. clean energy at the nonprofit Environmental Defense Fund, said obstructing the build-out of clean power is the wrong move as the country’s need for electricity is surging from data centers, industry and other demands.

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Wind, solar and battery storage offer the most affordable ways to get more reliable power on the grid, Kelly said.

“We should not be kneecapping America’s largest source of renewable power,” he said, “especially when we need more cheap, homegrown electricity.”

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