2/10 SWB said:
But it would mean that the servers aren't being paid at least $7.25 per hour. Those gifts (tips) don't count against the minimum wage. Therefore, the business will have to make up the pay difference between $2.13 and $7.25. Therefore, the business will have to pay an additional $5.12 per hour per server. Bars and restaurants are low margin businesses. That additional $5.12 per hour will be reflected in the cost of goods. It's no different than promising servers a "living wage." The consumer will be asked to pay more, and if the consumer refuses, the bar or restaurant goes out of business and the server loses their job.
I did take Econ 101. I got a C+
It would all depend how it was worded in the tax code (a thoroughly crazy an unintelligible amalgamation of regulations that frequently contradict.) It could be reported as non-taxable wages, and still affect parts of a tax return. States could still tax it as wages, or for unemployment tax purposes.