President Donald Trump’s “One Big Beautiful Bill Act” is moving its way through Congress with bold plans to overhaul America’s tax code, and one of the provisions most important to it would revolutionize the lives of millions of tipped workers across the country. The comprehensive bill includes the No Tax on Tips Act, which would exclude tips of up to $25,000 annually from federal income taxes.
The legislative breakthrough
The tip tax exemption has already gained robust bipartisan support, with the Senate approving the No Tax on Tips Act as a stand-alone bill by an unprecedented 100-0 on May 20, 2025. The record unity is proof of unusual cross-party consensus on economic policy. The sponsor of the bill, Senator Ted Cruz (R-Texas), averred that this policy is “real relief to hard-working Americans” who are living paycheck-to-paycheck.
The House also placed this provision in Trump’s entire One Big Beautiful Bill Act, which passed narrowly on a 215-214 vote. The Senate later voted on its megabill version with Vice President JD Vance breaking a 50-50 tie for the bill. The bill then returns to the House to reconcile differences in the two bills.
Who benefits and how much
The break in taxes is for about 4 million American employees in traditionally tipped jobs and covers about 2.5% to 5% of the total U.S. labor force. The employees work in a wide range of industries including restaurants, hotels, delivery services, and personal care facilities like barbershops, nail salons, and spas.
The employees must meet the following conditions in order to be exempted:
- Be employed in jobs that “traditionally and customarily received tips” as of Dec. 31, 2023
- Earn less than $160,000 total compensation for 2024-2025 tax year (increased annually for inflation)
- File tips with employers for payroll tax
The Secretary of the Treasury will release a general list of covered jobs within 90 days of bill passage. The exemption applies to all types of tip income, such as cash, credit card, and debit card payments, and checks.
Economic impact and worker benefits
For tipped workers, this legislation might mean substantial savings. In recent polls, 96% of tipped workers indicated their personal budgets would be improved if tip money is exempt from taxes. Asked how they would use the additional funds, respondents said they would:
- Save for a specific purpose (48%)
- Pay off debt (42%)
- Use it for monthly expenses (42%)
The tipped food service employee now makes a median of $14.48 an hour in tips and $10.74 in wages, and tips comprise about 57.4% of their compensation. The tax exemption would greatly enhance their actual compensation, especially for employees in states where tips make up a greater percentage of compensation.
Implementation timeline and duration
If passed, the No Tax on Tips provision would take effect in taxable years starting after Dec. 31, 2024. That is, workers can start writing off the tips that were earned in 2025 when they pay their 2026 taxes. The House version does have a sunset clause, with the tax deduction expiring Dec. 31, 2028.
The more ambitious One Big Beautiful Bill Act has been operating in a state of time constraint, with Trump originally anticipating a July 4, 2025 timeline. The president, though, has been keeping doors open, accepting that the deadline is “not the end-all” and is indeed feasible post-Independence Day.
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