"It is an outrage that waiters, waitresses, and other service-sector employees have to pay taxes on the tips they earn."
It is an outrage that waiters, waitresses, and other service-sector employees have to pay taxes on the tips they earn. The IRS makes an estimate of how much service-sector workers will make in tips, and taxes them on it even if the taxpayer did not actually earn as much as the IRS' estimate!
Tips provide a substantial portion of the income of many service-sector employees, many of whom are young people just trying to make a few extra dollars to get through school, or single parents often balancing two jobs while trying to make enough to raise a family. This tax amounts to nothing more than the federal government punishing these employees for working hard and doing their jobs well.
I have introduced H.R. 3664 in Congress to end this problem. The Tax Free Tips Act of 2007 will exempt tips from federal income and payroll taxes. Ending taxes on tips will give workers an immediate pay raise, letting them keep more money to put toward things like a house or car payment, their retirement, or their own and/or their children's education.
When you give someone a tip, you should not have to simultaneously tip the federal government.