If you’ve ever worked a job where tips made up a big part of your paycheck — like waiting tables, cutting hair, doing nails, driving for a rideshare company, or serving drinks — you know how important those tips are. They help pay rent, cover bills, and keep food on the table. But for years, there’s been one big catch: you’ve had to pay taxes on those tips, even when they were handed to you in cash.
That could soon change.
In a surprise move on Tuesday, the U.S. Senate, which is currently led by Republicans, passed a new bill called the No Tax on Tips Act. A bipartisan bill designed to provide tax relief to millions of American workers who rely on tips as part of their income. The legislation, co-sponsored by Senators Ted Cruz (R-TX), Jacky Rosen (D-NV), and Catherine Cortez Masto (D-NV), aims to allow eligible workers to deduct up to $25,000 in cash tips from their taxable income annually.
The vote happened so quickly and with so little opposition, it caught many people off guard. Usually, tax bills like this go through long debates, arguments, and amendments. But this one passed with no objections — not a single senator stood in its way.
So, what does this mean for you, especially if you work in a job where tipping is common? Let’s break it down.
What’s the “No Tax on Tips Act”
The No Tax on Tips Act is a new piece of legislation designed to reduce the taxes paid by workers who earn part of their income through tips.
Here’s the heart of it: If you report your tips to your employer for tax purposes (which you’re legally supposed to do), you would now be allowed to deduct up to $25,000 of those tips from your taxable income. That means when it comes time to pay federal income tax, you won’t owe tax on that portion of your earnings, up to $25,000 a year in reported tips.
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Key provisions of the bill
1. Tax Deduction for Tips: Workers in traditionally tipped occupations can deduct up to $25,000 in cash tips reported to their employers from their federal taxable income.
2. Eligibility Criteria: The deduction applies to employees earning less than $160,000 annually, with the threshold adjusted for inflation in future years.
3. Definition of Tipped Occupations: The U.S. Department of the Treasury is tasked with issuing a list of traditionally tipped occupations within 90 days of the bill’s enactment.
4. Employer Tax Credits: The bill expands existing employer tax credits for payroll taxes paid on tips to include those received in beauty and personal care services, such as barbering, nail care, and spa treatments.
5. This is a federal tax change, meaning it applies across all 50 states.
Who supports it — and who doesn’t
The bill has strong backing from groups like the National Restaurant Association, which represents restaurants and food service businesses. They see it as a way to support their employees and reduce turnover.
But not everyone is excited. Labor advocates and tax experts have raised some concerns :
1. It may not help the lowest-income workers much:
Many tipped workers earn so little that they already pay very little in federal taxes. So this deduction might not benefit them at all.
2. It could lead to lower base wages.
If employers know their staff will get a tax break, they may feel less pressure to raise hourly wages.
3. It could be misused.
Critics worry that wealthy people might find loopholes, like reclassifying regular income as “tips” just to avoid taxes, something that could cost the government billions in lost revenue.
4. It doesn’t solve deeper problems.
Some experts argue that instead of offering tax breaks, the government should simply require all employers to pay a living wage and eliminate the lower “tipped minimum wage” that still exists in many states.
What happens next?
The bill still has to pass the House of Representatives before it becomes law. That vote hasn’t happened yet. But with the Senate showing strong support and Trump backing the idea, there’s a good chance it will pass there too, especially in an election year where both parties want to show they’re helping everyday Americans.
If the House passes the bill and the president signs it, the law could go into effect as early as 2025, just in time for the next tax season.
What should you do now?
If you’re a tipped worker — or know someone who is,
Here’s what you can do:
- Keep reporting your tips properly. The tax break only applies to cash tips that are reported to your employer.
- Be updated: watch the news; the House will likely take up the bill soon, and changes could still happen.
- Talk to a tax professional. If this law goes into effect, you’ll want to know how to take full advantage of it when filing your taxes.
Final thoughts
At the end of the day, this bill could mean real money back in your pocket if you rely on tips to make a living. For some, it might be a few hundred dollars saved on taxes. For others, it could be thousands. And in a time when groceries, rent, and gas keep getting more expensive, that extra cash can make a huge difference.
We’ll keep watching this story — but for now, it’s fair to say that for many tipped workers across the country, this surprise Senate vote feels like a small but meaningful victory.
