Lawmakers are still kicking around the “no tax on tips” idea, a proposal that sounds worker-friendly until you reflect on its actual implementation. The latest wrinkle? Uber Technologies Inc. and DoorDash Inc. want the tip exemption that’s currently proposed for employees to extend to independent contractors.
Their argument is logical: Why should tips received by a restaurant server be tax-exempt while those received by a rideshare driver remain taxable? But this question illustrates the incoherence of tax-free tips as a policy.
When arbitrary distinctions are injected into the tax code, their effects often ripple. Eliminating taxes on tips isn’t just bad policy because of its first-order effects—it sets up issues such as this gig economy push-pull.
Companies that have resisted providing benefits to workers by classifying them as independent contractors now expect them to enjoy the tax advantages designed for employees. Making gig work more financially attractive helps these firms recruit and retain workers without having to increase pay or offer benefits.
If tax-free tips for employees are taken as a given, independent contractors and businesses vying for tax relief on their tips aren’t wrong. The problem is that exempting tips from taxation already would encourage employers to steer workers into tip-based positions. Expanding the benefit to independent contractors would take that further. Businesses would be motivated to reclassify roles into tip-reliant, contractor-style jobs, shifting costs to workers under the veneer of tax relief.
This is why tax policy must be grounded in consistent economic and social principles that can guide its implementation—not reverse-engineered from applause lines at political rallies.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed the IRS’s victory in US v. Miller, the challenges of nearshoring in response to increased tariffs, and more.
The Exchange—It’s where great ideas on tax and accounting intersect.
Insights
Proposed State Cannabis Tax Increases Pose Risks to Legal Market
Cannabis accounting experts Rachel Wright and Simon Menkes examine how potential cannabis tax increases in California, Ohio, Maryland, and Maine should prompt retailers to examine their business strategies.
Congress’ Nixing Crypto Reporting Rule Doesn’t Alter Compliance
David Canedo of CoinTracker says Congress’ passage of a measure to revoke the IRS’s DeFi broker reporting rule won’t relieve compliance burdens for crypto investors and their tax advisers.
IRS Supreme Court Win in Bankruptcy Suit Opens Door to Misconduct
University of Iowa’s Diane Lourdes Dick says a US Supreme Court decision narrowing the powers in bankruptcy trustee clawback suits may be limited in nature but could allow for strategic abuse.
Nearshoring’s Tariff Benefits Might Not Be Worth Other Costs
Aprio’s Vanessa Piedrahita and Jay Cho say US manufacturers must consider trade agreements, compliance challenges, and broad supply chain issues before nearshoring to Latin America in response to shifting tariff policies.
Despite DOGE and Detractors, IRS Direct File Must Keep Growing
Brookings’ Vanessa Williamson argues that Direct File’s positive impact on individuals’ tax filing experience and trust in government makes the program worth preserving and expanding.
How Tax Pros Can Shift From Government to Private Sector Work
Kostelanetz’s Caroline Ciraolo and Abigail Burke say tax lawyers leaving the public sector can create a personal business plan, use their soft skills, and understand imperfection to succeed in private practice.
Big Law’s Blacklist Reckoning Will Mark Firms for a Generation
University of Washington’s Eric Schnapper examines the divide growing between Big Law firms that choose to work with President Donald Trump versus resisting the EOs targeting lawyers—and what it means for the profession’s future.
Columnist Corner
A proposed noise tax on helicopters in New York City would be stronger if it taxed noise on a sliding scale rather than in a binary way that fails to “make being loud more expensive than being quiet,” Andrew Leahey writes in his latest Technically Speaking column.
New York could take cues from France’s more nuanced aircraft noise tax policy, which sets levies based on acoustic group, maximum takeoff weight, and takeoff time, Andrew says. Read More
News Roundup
Corporate SALT Cap Proposal Puts States, Businesses on Notice
A plan to cap the amount of state and local tax liabilities businesses can write off on their a federal returns would require big adjustments from companies and statehouses alike.
Global Tax Deal Prospects Overshadowed by Trump’s Tariffs
Global tax talks will grind to a halt as nations—including some of the US’s closest allies—turn their full attention to the emergency created by President Donald Trump’s sweeping punitive tariffs.
Dozens of IRS Information Technology Workers Are Put on Leave
As many as 50 IT employees at the IRS were placed on administrative leave March 28, according to a person familiar with the situation.
India Signs Record Number of Advance Tax Pacts With Companies
India’s tax department entered into a record number of advance tax agreements with companies on their transfer pricing positions in the fiscal year ended March 31.
Tax Managment International Journal
Companies in Brazil Need to be Proactive to Comply with Pillar 2
Companies operating in Brazil must be proactive in understanding and complying with Brazil’s new Pillar 2 rules to avoid penalties and ensure smooth operations, say KPMG practitioners.
Tax Management Memorandum
The Employee Retention Credit—How to Litigate and Resolve Claims
McDermott Will & Emery tax controversy practitioners outline the litigation path and key factors an employer should consider in resolving Employee Retention Credit claims that are often delayed, disallowed, or targeted for recapture by the IRS.
Why Executives, Business Owners Use Deferred Compensation Plans
Executives and business owners should consider using deferred compensation plans to supplement their retirement income, financial planner Henry Montag explains.
Career Moves
Robert Cipolla joined Hunton Andrews Kurth as a partner in Richmond, Va.
John Wiktor joined Honigman as a partner in its private client practice group and corporate department in Chicago.
Gary Orseck, William Trunk, Jennifer Windom, and Matthew Madden joined Hogan Lovells as litigation partners in Washington.
Megan Jones joined Vedder Price as a shareholder in its corporate tax and estate planning practice group in Los Angeles.
Andrew Robinson joined Larking Gowen as a partner in its business tax advisory team.
If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.
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