Victor Thuronyi (Former Lead Tax Counsel, IMF), A Simpler Approach to Taxing Tips, 187 Tax Notes Fed. 305 (Apr. 14, 2025):

In this article, Thuronyi explains why exempting tips from taxation is problematic, and he proposes a different solution that would relieve tipped workers of the burden of monthly reporting, thus simplifying compliance and reducing tax on tipped workers without encouraging the expansion of tipping.

Conclusion
Historically, taxing tips has been problematic because of the difficulty of tracing cash. Given the decline in the use of cash, it is now easier to tax tips. There is no compelling reason to change the rules for taxing tips. Moreover, exempting tips would be problematic for several reasons. Still, if Congress wants to provide more favorable tax rules for tips, the approach of tweaking section 6053(c)(3) to provide a safe harbor rule under which employees would be relieved of the burden of reporting tips monthly if the employer allocates tips to the employees in a total amount calculated as a statutory (or regulatory) percentage of sales can respond to political concerns with a minimum of revenue loss.

It is not a perfect solution, but it has the advantage of not changing current practice very much and therefore not upsetting the existing system. It would generally result in a small tax reduction for most tipped employees. The advantage would not be so dramatic as to encourage the expansion of tipping. And it would simplify tax compliance and reporting. Exempting only a portion of tips by using a safe harbor calculation also responds to the concern that exempting tips completely is not necessarily advantageous for workers.