How no taxes on tips could impact you

The Hill

08-07-2025

(NEXSTAR) — Among the multiple provisions within the bill President Donald Trump signed last week are several that could directly impact you, like changes to the child tax credit, a tax deduction for seniors, and no taxes on overtime pay.
Another aspect that could put more money in your pocket will depend on where you work — and how you're paid.
If you receive tipped wages, up to $25,000 will be tax deductible starting this year and running through 2028. The maximum deduction is available to those who have an income of $150,000 or less, or up to $300,000 for those filing jointly.
This also only applies to federal income taxes, which means those who don't make enough to pay federal income taxes won't benefit from the deduction, according to The Wall Street Journal. Additionally, it will only apply to certain professions. The Treasury has to provide a list of those qualifying jobs within three months, WSJ reports.
Tips are currently considered taxable.
The cap on the amount of tipped wages that are tax deductible was added to the bill by the Senate, and received pushback from some, including Rep. Alexandria Ocasio-Cortez (D-N.Y.). She called the cap a 'scam,' pointing to other cuts in the megabill that could raise taxes for some and strip their SNAP, Medicaid, or insurance.
Rep. Lloyd Doggett (D-Texas) shared similar sentiments about the bill passed by the GOP-led Senate, saying, 'These little flourishes that were added, like no tax on tips, are issues that are designed to cover the horrible job that they're doing.'
Trump and former Vice President Kamala Harris campaigned on tax-free tips last year, and the Senate passed the 'No Tax on Tips Act' earlier this year, which received bipartisan support.
The Finance Committee specified that 'cash tips' qualify but said the term applied to tips paid in cash, charged to credit cards or received from other employees under a tip-sharing arrangement.
The National Restaurant Association, a trade organization that represents nearly 500,000 U.S. restaurants and bars, applauded the House's passage of Trump's spending bill — which did not cap the amount of tax deductible tipped wages — and said it wants to see tax-free tips. The association estimates the measure would benefit more than 2 million servers and bartenders.
But the U.S. restaurant industry has more than 12 million workers, including dishwashers and chefs, according to government data. The Independent Restaurant Coalition said last month the 'no tax on tips' proposal leaves out too many of those workers.
Others have instead called for Congress to take up a separate bill introduced by Nevada Democrat Steven Horsford that would eliminate taxes on tips but also require restaurants to pay workers at least the federal minimum wage of $7.25 per hour. In 43 states, restaurants are currently allowed to pay tipped workers much less, in some cases as little as $2.13 per hour.
The Associated Press contributed to this report.