House passes tax bill, including 'no tax on tips' provision. How much will workers save?

USA Today

22-05-2025

House passes tax bill, including 'no tax on tips' provision. How much will workers save? House Republicans' tax plan includes a 'no tax on tips' provision. How many workers stand to benefit?
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Budget battle showing cracks in GOP
Republicans are divided on the bill, arguing that cuts to popular social programs could impact voter opinions and their slim majority in the House.
The U.S. House passed Republicans' sweeping tax bill early May 22, pushing forward a provision that could temporarily eliminate taxes on tips.
While all Democrats and two Republicans voted against the tax bill, doing away with taxes on tips has proven to be popular across party lines, with nearly 75% of Americans in support, according to an August Ipsos poll. Critics, though, have argued that it would be a costly, unfair tax break that would benefit few lower-income Americans.
'A relatively small number of workers are going to see any significant tax savings from this proposal,' said Joseph Rosenberg, a senior fellow at the left-leaning Urban-Brookings Tax Policy Center.
Who qualifies for no tax on tips?
The tax bill would create a temporary tax deduction through 2028 for employees and independent contractors in occupations that 'traditionally and customarily received tips' − servers, for example. Should the bill pass, those occupations would be hashed out by the treasury secretary.
Highly compensated workers who make at least $160,000 in 2025 would be ineligible.
How much would tipped workers save through no tax on tips?
Some tax policy experts have criticized the idea because of its limited scope.
Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a center-right think tank, said it would be an unfair policy. For instance, why should a restaurant's tipped server have access to more tax breaks than the untipped chef working in the kitchen?
'It's good news for the workers out in Nevada, where there are a lot of tipped workers,' Pomerleau said. 'But you are isolating one segment of the population.'
Even tipped workers may find themselves ineligible for the tax break.
The proposed tax cut applies only to income taxes, not payroll taxes. That means the estimated 37% of tipped workers in the country who didn't make enough money to face federal income taxes in 2022 would see no benefits from the proposal, according to an estimate from the Yale Budget Lab.
"It is also going to do very little for workers, even that receive tips, at the low to middle part of the income distribution,' Rosenberg said.
The Tax Policy Center last year found ending taxes on tips would benefit about 2% of all households, or 60% of households with tipped workers, with an average tax cut of about $1,800 a year. Rosenberg said the analysis has not been updated since the tax plan was unveiled on May 12, but he expects figures to be similar.
Another 2024 analysis from the Yale Budget Lab had similar results, finding an estimated 4 million tipped workers – 2.5% of the total working population – would benefit from no taxes on tips. The average tax cut for families who benefit would be roughly $1,700, while the bottom fifth of earners would save $200.
How much will it cost to implement no taxes on tips?
Overall, the tip provision is estimated to cost about $40 billion over four years, according to the Joint Committee on Taxation. It's a small fraction of the tax bill, which is estimated to add roughly $4 trillion to the deficit, but still a notable figure, according to Alex Muresianu, a senior policy analyst at the Tax Foundation, a center-right tax policy think tank.
'If you're going to drive a hole in the tax base for no reason, you'd rather that hole be the size of VW Bug instead of a semitruck,' he told USA TODAY. 'But at the end of the day, you're still driving a hole in the tax base.'
Meanwhile, the Republican tax bill as a whole could cause low-income families to lose hundreds of dollars in after-tax income by cutting spending on programs like Medicaid and the Supplemental Nutrition Assistance Program, formerly known as food stamps, according to a new analysis from the Penn Wharton Budget Model.
The top 0.1% of earners would gain $389,280 on average next year, but Americans making between $17,000 and $51,000 stand to lose $705 on average, according to the analysis, first reported by The New York Times. Those with an income of less than $17,000 would lose more than $1,000 on average, with losses worsening over time.
Americans could be squeezed further if the tax breaks have employers and workers lean more heavily on tips, exacerbating post-pandemic tipping fatigue.
Though the proposal has guardrails that would limit the ability to restructure pay, "certainly in tip-eligible industries there would be a tax incentive to shift income toward tax-exempt tips instead of taxable wages,' Rosenberg said.
Separate 'No Tax on Tips Act' passes the Senate
The Senate on May 20 passed a separate bill, dubbed the "No Tax on Tips Act," that would create a new tax deduction on cash tips worth up to $25,000.
Introduced by Sen. Ted Cruz, R-Texas, and brought up for a voice vote by Sen. Jacky Rosen, D-Nevada, the bill passed with unanimous consent. Highly compensated employees – or those who made more than $160,000 in 2025 – would not be eligible.
The "No Tax on Tips Act" could prompt lawmakers to scratch the "no tax on tips" language in Republicans' tax bill. It would need the House's stamp of approval before becomes law.
"Whether it passes free-standing or as part of the bigger bill, one way or another, 'No Tax on Tips' is going to become law and give real relief to hard-working Americans," Cruz said on the Senate floor.
What happens next?
Republicans' tax bill, dubbed the "one big, beautiful bill," heads to the Senate next, which has already signaled it plans to make changes. If the two chambers work out details capable of winning majority votes, it would then head to Trump's desk to be signed into law.
Trump urged the Senate to work fast.
"It's time for our friends in the United States Senate to get to work, and send this Bill to my desk AS SOON AS POSSIBLE!" Trump said in a social media post.
Contributing: Riley Beggin