PYMNTS-MonitorEdge-May-2024

Killing Tip Taxes May Give Momentum to Instant Digital Payouts

cash, tips, taxes

Headed into last week’s presidential election, both Donald Trump and Kamala Harris endorsed eliminating taxes on tips.

Coming into office in January 2025, Trump, now president-elect, has said that exempting those taxes would be a priority, telling workers in Nevada during the campaign the move would be “first thing” on the list.

The mechanics of how that exemption might work remain to be seen, including how the government might offset the lost revenues.

The non-partisan Committee for a Responsible Federal Budget estimated in June, for example, that the move might reduce federal revenues by as much as $150 billion to $250 billion over a 10-year span.

But for the workers themselves, and for the various firms that employ them — especially in the leisure and hospitality industry, which employs 16.9 million individuals, per government stats — eliminating those taxes may continue to hasten the shift to digital payouts.

Any change in tax mandates will move stakeholders to re-examine the burdens of collecting and accounting for cash payments and income reporting tied to that cash (especially if those tips might still be taxed at the state level, which seemingly still is unclear).  The continued burdens of lugging the cash to the bank to be deposited in the bank are one key point of friction that staffers and employers would like to sidestep. In addition, the psychological impact of getting more money into one’s pocket (because it’s untaxed) will likely boost digital payouts as well, especially instant payouts.

Recognizing the Benefits of Digital

There’s already growing recognition of the benefits of streamlined, speedier disbursements in the hospitality industry. As noted earlier in the PYMNTS Intelligence study “Generation Instant: Hospitality and Tips,” we found significant potential for digital to displace cash, as 58% of workers in the sector received their tips most often in cash. Given the fact that workers earn about $10,000 annually, on average, in tips, that’s a lot of cash.

The data shows that over that same span, 31% of hospitality workers received tips through instant methods at least once through 2023, which leaves more than two-thirds of hospitality workers as a rather large untapped market — if we extrapolate the 69% number to the 16.9 million workers noted above, that comes out to 11.7 million individuals.

PYMNTS found that of the workers who choose instant payment modalities, 81% of workers choose that method for convenience, and 74% choose instant because they want secure fund in hand, with the same availability as cash.

For the restaurants and other enterprises operating in the leisure industry, making the digital shift will be important. Our study found that employers offer the option to less than half of workers (48%, to be exact) – and 44% of workers say they’re not offered the choice at all. But when given the option, 82% of hospitality workers selected it to receive their tips.

For the establishments themselves, moving steadily toward digital payouts while embracing tip disbursement software means having less cash on hand, reducing daily operational burdens (again, those trips to the bank and divvying up the cash tips at the end of shifts). There’s also better security for both the business and the worker, who’s carrying less cash on their person.

PYMNTS-MonitorEdge-May-2024