The Republican-introduced No Tax on Tips Act moved one step closer to becoming law after the legislation was unanimously passed in the Senate on Tuesday. The bill now moves on to the House, and if passed there, to President Trump’s desk for signing.
If passed, the No Tax on Tips Act would establish a new tax deduction of up to $25,000 a year for employees who typically receive cash tips and earn $160,000 a year or less. This limit would be adjusted annually for inflation.
Although this legislation has achieved broad bipartisan popularity, economic policy experts and lobbyists have disagreed on just how effective and impactful it would be, particularly for employees that rely heavily on tips, like restaurant servers.
Despite the name, ‘No Tax on Tips’ proposal does not actually eliminate all taxes from cash tips, as employers would still be required to pay their portion of the payroll taxes. Employees would also still be subject to any state taxes on their tips.
Additionally, about 37% of tipped workers in 2022 did not make a high enough salary to pay into federal income tax, according to the 2023 CPS ASEC (Current Population Survey of Annual Social and Economic Supplement), so more than one-third of tipped employees would not even benefit from this tax deduction.
The No Tax on Tips Act was originally introduced in January by Sen. Ted Cruz (R-Texas) and a bipartisan group of cosponsors. Sen. Catherine Cortez Masto (D-Nev.), a cosponsor of the bill, introduced it to the Senate floor for a surprising “unanimous consent vote.”
“Nevada has more tipped workers per capita than any other state. So this bill would mean immediate financial relief for countless hard-working families,” Rosen said, according to NBC News. “No Tax on Tips was one of President Trump’s key promises to the American people, which he unveiled in my state of Nevada. And I am not afraid to embrace a good idea, wherever it comes from.”
Separately, the U.S. House of Representatives narrowly passed President Trump’s sweeping tax bill on Thursday, which also included tax breaks for tipped income, among cuts to Medicaid and SNAP.
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