Expert explains why Trump's 'tax free' tips bill could put service workers at risk of a 'catch'

A financial expert has lifted the lid on why Trump's 'tax free' tips bill could actually put service workers at risk of a 'catch'.

Last week, White House Republicans passed a legislation to extend Donald Trump's 2017 Tax Cuts and Jobs Act to the tune of multi-trillion-dollar tax breaks.

The proposed law, which Trump has called the 'big, beautiful bill,' will now go to the Senate.

If passed, it promises a raft of tax cuts, including no taxes on tips for workers in the beauty and service industries, like restaurants and bars.

It also proposes a freeze on taxes for those who work overtime and deductions on car loan interest as well as gun silencers.

However, as service workers might be celebrating the tax exemption, which will be temporary up until 2028, some experts are issuing a stark warning about its potential pitfalls.

Trump has promised to end taxes on tips for workers in the US (MANDEL NGAN/AFP via Getty Images)

Speaking to UNILAD, Rachel Harris, co-founder of accountancy firm StriveX, said the bill is certainly 'hailed as a win for service workers,' but warned while it seems 'generous,' there is a hidden catch to be mindful of.

She explained: "Let’s say a bartender makes $100 in tips during a shift. Under this bill, they’d keep the full $100, without paying tax on it at least until 2028.

"That might feel like a pay rise, especially in industries where tips make up a big chunk of take-home pay."

However, the financial expert, who has shot to Instagram fame for her top tips on tax, warned: "But here’s the catch: if tips are untaxed, they may also go unreported.

"That can impact credit scores, mortgage applications, and future entitlement to benefits like pensions or unemployment support, which often rely on provable, taxable income."

Harris went on to say that the move only substitutes a bandaid over addressing the bigger problem in the service industry.

The financial advisor has warned there's a big catch with the bill (Instagram/accountant_she)

"Why are service workers, often already underpaid, being handed temporary tax breaks instead of sustainable wage reform?" she continued. "Removing tax on tips is a short-term fix in a sector crying out for structural support."

"As an accountant, I’d urge anyone in these industries to keep reporting their income accurately, tax-free or not because short-term savings shouldn’t come at the cost of long-term financial security.”

The accountant isn't the only one to issue caution about the bill either with Democrats dubbing it the 'big, bad bill' or 'big, broken promise.'

To make up for the lost tax revenue, Trump plans on pinching the purse strings in areas like Medicaid and SNAP food stamp benefits by ramping up eligibility checks, cutting funding for undocumented immigrants, axing funds from Planned Parenthood, and banning children and adults from accessing funds for gender transition services.

The expert says staff will be able to keep 100 percent of their tips, but has a 'catch' (Getty Images)

The Congressional Budget Office (CBO) estimated 8.6 million fewer people would have healthcare coverage as a result while the changes to Medicaid, food stamps and other services pose a saving of one trillion dollars.

The CBO also said the lowest-income households in the country would see their resources decrease while higher earners would see a boost.

New York Democrat Alexandria Ocasio-Cortez particularly takes issue with the cuts in Medicaid, highlighting what she said is essentially the 'defunding' of Planned Parenthood, all of which will strip healthcare from 13.7 million people in the US.

AOC isn't pleased with the bill for its threats to Medicaid (Anna Moneymaker/Getty Images)

“When this country wakes up in the morning, there will be consequences to pay for this," she added in her fiery rebuke on the House floor last week.

The bill has also hit a nerve with some Republicans who were forced to drop their opposition to push it through last week, meaning it to squeaked by with just one vote.

Now, it will go to the Senate for consideration.

A bill must pass through both the House and Senate in order to for the President to sign it into law.