22-05-2025
What to know about the No Tax on Tips Act and who it affects
The no-tax-on-tips provision is getting closer to becoming a reality for the nation's tipped workers.
Why it matters: The Senate passed the bill to eliminate federal income tax on tips Tuesday — a campaign promise by President Trump.
A version of No Tax on Tips is included in Trump's " Big, Beautiful Bill" that's making its way through the House.
The massive bill proposes extending Trump's 2017 tax cuts and cuts to social safety programs.
What is the No Tax on Tips Act?
The big picture: The No Tax on Tips Act or Bill S. 129 proposes amending the Internal Revenue Code to exempt "cash tips" from federal income tax.
Eligible employees will be allowed to claim a 100% deduction of up to $25,000 per tax year.
Sen. Ted Cruz (R-Texas) introduced the bill, which was sponsored by a bipartisan group of senators, in January.
Which workers would be eligible for tax exemption
Zoom in: Waiters, bartenders and delivery drivers are examples of employees who could become eligible for the tax exemption, Senate Minority Leader Chuck Schumer (D-New York) said in a statement.
Tipped workers tend to be lower income — the median weekly wage for tipped occupations was $538 in 2023 compared to $1,000 for non-tipped workers, according to estimates from The Budget Lab at Yale University.
Roughly 4 million U.S. workers were in tipped occupations in 2023 or 2.5% of all employment, per Yale Budget Lab.
To qualify for the tax deduction, there would be a $160,000 earnings limit for 2025, which would be indexed for inflation yearly.
When does no tax on tips start?
What we're watching: The bill has to be approved by the House of Representatives and signed by Trump to become law.
If approved, the bill is expected to apply to taxable years beginning after Dec. 31, 2024.
The House version sets a Dec. 31, 2028, end date for the tax deduction.
Current IRS tax rule on tips
How it works: The Internal Revenue Service says current workers who receive cash tips of $20 or more monthly must report those earnings to employers.
