Washington, D.C. (October 17, 2025) — The Independent Restaurant Coalition (IRC) today called on the U.S. Department of the Treasury to amend its proposed No Tax on Tips regulations to ensure that all restaurant and bar workers — including those compensated through service charges and automatic gratuities — are eligible to benefit from the new tax deduction.
In a formal comment letter submitted to Treasury Secretary Scott Bessent, the IRC warned that the rule, as currently drafted, would reduce take-home pay for thousands of employees, destabilize wages, and reverse the progress many restaurants have made toward creating equitable, professional workplaces.
“Treasury’s proposal draws a line between who deserves a tax break and who doesn’t—based not on their work, but on whether they’re allowed to receive tips,” says Erika Polmar, Executive Director of the Independent Restaurant Coalition. “Cooks, dishwashers, and other essential staff are excluded under federal and state laws that limit tip pooling. Recognizing service charges and auto gratuities are the only way to ensure every restaurant worker benefits as Congress intended.”
The IRC’s letter outlines several key recommendations for Treasury to strengthen the rule and uphold its intent to support workers, including:
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Include service charges and automatic gratuities — These systems help restaurants provide all employees with steady income, offer benefits, and reduce the wage gap between front- and back-of-house employees. Removing them from eligibility would force many restaurants back to volatile, tip-dependent models.
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Provide clear federal preemption — Clarifying that the federal tax deduction applies uniformly nationwide would resolve conflicts with state tip pooling laws and ensure equal treatment for workers in every state.
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Coordinate with the Department of Labor — Clear guidance is needed to align this policy with the Fair Labor Standards Act (FLSA), which currently limits who may legally receive tips.
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Allow a transition year — Giving restaurants that operate with service charges time to adapt would prevent penalizing employees in 2025.
The IRC’s findings are grounded in real-world compensation data from full-service restaurants across the country. Analyses show that service-charge pay structures can raise total hourly earnings by more than 20% compared to traditional tipping models. These systems also fund higher base wages, health benefits, and more predictable paychecks for hourly workers.
“This policy was designed to put more money in workers’ pockets,” Polmar continued. “Without these changes, it will do the opposite — cutting wages, widening inequities, and undermining the progress small restaurants have made to professionalize the industry.”
The full comment letter may be found here.
About the IRC:
Founded in 2020, the Independent Restaurant Coalition represents the nation’s over 500,000 independent restaurants and bars that employ over 11 million people and anchor local economies in every community across the country. The IRC works to secure economic relief, shape policy, and create a stronger, more equitable future for small, independent operators nationwide.