Uber and DoorDash Lobby for Tax-Free Tips for Gig Workers

Uber and DoorDash are urging Republican lawmakers to expand President Biden's "no tax on tips" proposal to include independent contractors, according to a report by The Wall Street Journal. The companies want the tax deduction to apply to ride-share drivers and food delivery workers.

The leading tax-free tips bill, proposed by Senator Ted Cruz (R-Texas) and Representative Vern Buchanan (R-Fla.), would currently benefit restaurant and casino workers. However, Uber and DoorDash drivers, classified as independent contractors, receive Form 1099 instead of Form W-2, rendering them ineligible under the current legislation.

"We’ve become a major component of how consumers tip," said Javi Correoso, Uber's head of federal affairs, to the WSJ. "If Congress is going to move in the direction of prioritizing this no-tax-on-tips concept, we’re engaged in asking lawmakers to support Uber drivers and UberEats couriers as a fairness issue."

The Cruz-Buchanan bill aims to implement Biden's "no tax on tips" campaign promise, incorporating features to limit costs and prevent abuse. The proposed deduction would be capped at $25,000, available even to those who don't itemize deductions. However, the bill would also disqualify individuals exceeding a high-income threshold, currently set at $160,000.

The legislation further aims to prevent misuse by establishing a list of traditionally tipped occupations, addressing concerns that professionals like lawyers and hedge fund managers might mischaracterize their income as tax-free tips. Crucially for Uber and DoorDash, eligibility would be tied to reports submitted by employers detailing wages and tips.

Max Rettig, DoorDash's global head of public policy, emphasized the need for Dashers to be included, stating, “Tips are tips—there’s no reason to exclude Dashers based on how they work.”

The Cruz-Buchanan bill is part of a broader Republican effort to pass legislation extending expiring tax cuts, increasing spending on border security and national defense, reducing spending on government health programs, and introducing new tax breaks.

The "no tax on tips" proposal has garnered support from the National Restaurant Association, but the group has yet to take a stance on expanding it to independent contractors. The group also acknowledges that other industry payments, such as non-voluntary service charges, are not covered by the current bill.

The potential cost of "no tax on tips" is significant, potentially approaching $200 billion over a decade, raising concerns about its impact on the overall budget.

"This is a super unique idea," said Aaron Frazier, vice president of public policy at the National Restaurant Association, to the WSJ. "Making it bigger could make other things harder at the end of the day."

The debate over the classification of ride-share and food delivery workers has been ongoing, with companies and some drivers favoring the independent contractor model for its flexibility. However, this model deprives workers of employee protections, raising concerns that tax-free tips could further suppress wage increases and lead to an expansion of tipping.

"Workers, he said, are ‘just sort of being doubly screwed by this proposal," David Cooper, director of state policy and research at the Economic Policy Institute, told the WSJ. "You have workers being misclassified, and now they’re going to get a tiny tax break that doesn’t make up for the fact that their wages are too low."