Upper Valley service industry workers react to change in tax law for their tips

WEST LEBANON — Earlier this month, President Donald Trump signed a bill that slashes funding for social services such as Medicaid and food stamps to provide tax cuts. The tax breaks will mostly benefit the richest 20% of Americans, according to the Institute on Taxation and Economic Policy.

But the parts of the law, known as the “One Big Beautiful Bill Act,” referred to as “no tax on tips” and “no tax on overtime,” could allow some service industry workers to keep a few more dollars in their paychecks.

Gannon Dellinger, a cafe associate at Cappadocia Cafe, thinks it’s “fantastic” that his tips will no longer be taxed.

“It’s how it should be,” Dellinger, 23, said from behind the White River Junction cafe’s counter.

Under the new law, enacted July 4 and effective now until 2028, up to $25,000 of tips can be deducted from annual federal income taxes for taxpayers with modified adjusted gross incomes of less than $150,000.

Additionally, those “who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay — such as the ‘half’ portion of ‘time-and-a-half’ compensation” up to $12,500, the IRS’ website says.

“It’s awesome, obviously,” Natalie West, a waitress at Lui Lui in West Lebanon, said on Tuesday referring to the new policy. “I think it’s great.”

West, who’s worked in the service industry for about 16 years, voted for Trump. “I’m not a Trumpian but I made the decision he was the better choice,” she said.

Although she thinks the deduction in taxes on tips and overtime is “slightly random” compared to Trump’s usual focus on immigration and “excavating the government,” she said the new policy “seems promising” and is “something to watch.”

Trump campaigned heavily on the “no taxes on tips” policy during the 2024 presidential race, saying he got the idea from a Las Vegas tipped-worker. The Democratic nominee, former Vice President Kamala Harris, also incorporated eliminating taxes on tips into her platform leading up to the election.

However, not many Americans will benefit from the deductions. Tipped workers make up about 2.5% of the workforce in the U.S. and 37% of them didn’t make enough in 2022 to face federal income taxes, according to the Budget Lab at Yale University.

Among those who would benefit, the average tax cut would be about $1,800 a year, reports the Tax Policy Center.

Many tipped workers are still trying to figure out if they qualify or not.

On Tuesday, Tanya Guryel, owner and stylist at Hair Love Boutique in Lebanon, thought she couldn’t benefit from the new policies since she’s self-employed and she had heard from other people in the industry on social media that they wouldn’t qualify. But on Thursday, she and her tax accountant were checking to see if that was the case.

The other stylists at Hair Love Boutique are also self-employed and rent studio space from Guryel.

“It’s confusing. I don’t have a definite answer,” Guryel said. “It’s really frustrating because there’s other girls who work here who’d love to benefit from it. A lot of us rely on gratuity.”

Even though about 15% of Guryel’s annual income comes from tips, she does not anticipate reaching the $25,000 limit on deductible tips.

“I don’t make that much money,” she said. “That’s a lot of haircuts and colors.”

Jamie Eddy, the store manager at the Domino’s Pizza in Hanover, typically works 10 hours of overtime per week. She described herself as “not a politics person.”

She expressed skepticism that the new policy would stick and worried it could change by the time taxes are due.

“Who knows what they’ll come up with,” she said. “I think there’s a catch.”

For business owners in the area, the new policy could be “an increase in pay for servers and those who receive tips without the business owners having to increase wages and their expenses,” Tracy Hutchins, recent former president of the Upper Valley Business Alliance, said. “I don’t know if it’ll address the shortage of labor that’s still prevalent in the Upper Valley in service positions. We’ll have to see how that plays out.”

Windsor resident Amy Linn enjoyed a late-morning snack at Cappadocia on Thursday. She said the lack of taxes doesn’t change the way she’ll tip. “I’ll continue to tip like I always do: Based upon the service and how much I spend.”

For Kristen Haliday, who was also at Cappadocia Thursday morning, the new policy is “more of an incentive to tip because the money is going to the people you’re tipping,” she said.

While Dellinger, the Cappadocia associate, is glad to be able to keep more of his tips, he isn’t happy about the rest of the “One Big Beautiful Bill Act.”

“If the choice was I get untaxed tips or the bill doesn’t get passed, I’d choose taxes on tips,” Dellinger said.

Emma Roth-Wells can be reached at erothwells@vnews.com or 603-727-3242.