The Senate passed Trump’s No Tax on Tips Act. Here’s what it could mean.
The Senate unexpectedly passed the No Tax on Tips Act in a unanimous vote Tuesday, giving weight to the prospect of eliminating federal income tax for cash tips, which picked up political traction during Donald Trump’s presidential campaign.
Here’s what’s in the bill and what it could mean for you.
The facts
Bill S. 129, or the No Tax on Tips Act, creates a federal income tax deduction of up to $25,000 a year for certain types of cash tips for eligible employees. Sen. Ted Cruz (R-Texas) introduced the bill in January.
Sen. Jacky Rosen a Nevada Democrat who cosponsored the bill, brought it up Tuesday for “unanimous consent” — a type of vote usually reserved for routine congressional matters.
Democrats and Republicans praised the speedy passage of the bill and framed it as an example of successful bipartisanship. The legislation will now to go the House.
What’s in the bill?
The “No Tax on Tips Act” proposes amending the Internal Revenue Code to exempt “cash tips” — which include tips given in cash, credit and debit card, and checks — from federal income tax. Eligible employees will be allowed to claim a 100% deduction in their tax filings for amounts of up to $25,000 per tax year.
The exemption would only apply to tips “received by an individual … in an occupation which traditionally and customarily received tips on or before Dec. 31, 2023,” according to the text of the legislation, which states that the treasury secretary must publish a list of eligible occupations no later than 90 days after the bill’s passage.
In a statement, Senate Democrat Leader Charles E. Schumer of New York cited waiters, bartenders and delivery drivers as examples of the types of employees who could become eligible for the tax exemption.
Only employees who were compensated less than $160,000 in the 2024-2025 tax year — an amount that would be adjusted annually for inflation — would be eligible for the exemption, and they would have to report their tips to their employers for purposes of withholding payroll taxes, according to the legislation.
Schumer said in his statement that Americans who receive tips “work hard for every dollar they earn and are the ones who deserve tax relief, not the ultrarich.” Cruz said in a statement the bill “will have a lasting impact on millions of Americans by protecting the hard-earned dollars of blue-collar workers, the very people who are living paycheck-to-paycheck.”
The bill would also expand the business tax credit “for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments,” according to its Senate description page.