Eliminating the tip tax could give digital payouts more momentum

Before last week’s presidential election, both Donald Trump and Kamala Harris supported eliminating taxes on tips.

When Trump took office in January 2025, the now president-elect said that exempting these taxes would be a priority, telling Nevada workers during the campaign that this step was “first” on the list.

It remains to be seen how this exemption might work, including how the government might make up for the lost revenue.

For example, the bipartisan Committee for a Responsible Federal Budget estimated in June that the move could reduce federal revenues by as much as $150 billion to $250 billion over 10 years.

But for workers themselves and for the various companies that employ them – particularly in the leisure and hospitality industry, which employs 16.9 million people, according to government statistics – eliminating these taxes could further accelerate the shift to digital payouts.

Any change in tax rules will cause stakeholders to re-examine the burdens of collecting and accounting for cash payments and the income reporting associated with that cash (particularly when those tips may continue to be taxed at the state level, which still appears to be unclear) . The constant hassle of lugging cash to the bank to deposit it into the bank is a major point of friction that employees and employers would like to avoid. Additionally, the psychological impact of putting more money in your pocket (because it is untaxed) is also likely to increase digital payouts, especially instant payouts.

Recognize the advantages of digitalization

The benefits of streamlined and faster payouts in the hospitality industry are already being increasingly recognized. As noted in the PYMNTS Intelligence study, Generation Instant: Hospitality and Tips, we found significant potential for digital technologies to displace cash, as 58% of workers in the industry received their tips most often in cash. Considering that workers earn an average of about $10,000 per year in tips, that’s a lot of money.

The data shows that over the same period through 2023, 31% of hospitality workers have received a tip via instant methods at least once, representing a fairly large, untapped market for more than two-thirds of hospitality workers – if we use the number of 69 % extrapolate From the 16.9 million employees mentioned above, that’s 11.7 million people.

PYMNTS found that 81% of workers who choose instant payments do so for convenience, and 74% choose instant payments because they want secure money that is just as accessible as cash.

Digital transformation will be important for restaurants and other leisure companies. Our research found that employers offer this option to less than half of employees (48%, to be exact) – and 44% of employees say they are not offered this choice at all. But when given the option, 82% of hotel employees chose this option to receive their tips.

For the businesses themselves, the steady shift to digital payouts while introducing tip payout software means they have less cash on hand and reduce daily operational burdens (again, trips to the bank and splitting tips at the end of the shift). There is also better security for both the company and the employee who is carrying less cash.