The bill would halt tax on most tips till 2028.
Tax cut provisions in the Republican-backed One Big Beautiful Bill (OBBB) would mean a reduction in taxes for workers who earn their income through tips.
The House-passed version of the legislation from the OBBB eliminates federal income taxes on tips for those working jobs that traditionally survive on tips, as long as they’re making less than $160,000 in 2025.
This was tweaked by the Senate Finance Committee, which passed a modified version on June 23, capping tip income deductions at $25,000 and phasing them out for workers with an income of more than $150,000.
In both versions of the bill, the measure would apply through 2028, and the final draft from the Senate specified that this applies not just to cash tips but also those charged to credit cards, or any from employee tip-sharing arrangements.
Previous Attempts
Some details of the OBBB’s tip taxing policy are yet to be hashed out, but it will likely share some of the traits from the Senate-passed standalone No Tax on Tips Act legislation.
That bill was introduced with bipartisan support in the Senate on Jan. 16 and passed on May 20.
The bill was introduced by several lawmakers, including two of Nevada’s Democrat senators, Jacky Rosen and Catherine Cortez Masto.
Sen. Ted Cruz (R-Texas), who authored the bill, said it would “Fulfill President [Donald] Trump’s promise to end the wrongful practice of taxing voluntary tips.”
The lawmaker went on to speak about how he believes the bill serves his constituents, saying: “I’ve long believed the GOP should be the party of bartenders, of waiters and waitresses, and this bill is an important step to ensure we are addressing the economic needs of working Americans.
“This pro-worker bill will deliver relief to families facing rising costs caused by the Biden administration’s inflationary policies.”
As it stands now, any employee who garners tips exceeding $20 in a month has to report that to their employer, in order for the employer to report the amount and withhold payroll taxes.
Under the Senate’s standalone legislation, new tipped workers who earn in the bottom 60 percent of income are likely to receive an average tax cut of $1,260 once tips are excluded from being taxed, according to the nonpartisan Peter G. Peterson Foundation.
The organization said that the estimated federal revenue drop due to the lack of tax on tips would likely drop by about $110 billion over 10 years, if the measure continues.
While the new law wouldn’t have applied to any employee making more than $160,000 in 2025, the bill allows for that figure to be adjusted annually to compensate for inflation.
Resistance
There is some resistance to the measure, however, including from those in the U.S. restaurant industry.
There is concern that the legislation is too narrow and will help too few people, obscuring bigger issues about how tipped workers are paid.
The Independent Restaurant Coalition has appealed to Congress to reconsider the proposal.
The group represents nearly 100,000 restaurants and bars that employ tipped workers, and it says that some of those workers oppose the no-tax-on-tips measure.
“I think there’s a huge hole in this concept of ‘no tax on tips’ because a lot of restaurant workers aren’t receiving tips in the first place,” said Elyanna Calle, a bartender in Austin, Texas, and the president of the Restaurant Workers United union.
“It’s not helping most kitchen workers, and oftentimes those are the people who are being paid the least.”
The Economic Policy Institute also stands against the change in policy, saying that the concept will likely harm more workers than it helps.
In addition to concerns that this type of legislation could undermine pay increases for traditionally tipped workers, the group said that it could expand the use of tipped work, a system the institute said was “rife with discrimination and worker abuse.”
Additionally, the removal of tax on tips would “deplete state and federal budgets and create new avenues of tax avoidance, especially for high earners,” according to the group.
Trump’s Take
A White House release on the tax cut program stated that “The NO TAX ON TIPS plan is just one aspect of President Trump’s Day One commitment to deliver relief to Americans ravaged by years of Bidenflation.
“In his first five months, President Trump has overseen the largest increase in blue-collar wage growth in 60 years, lower costs, and explosive job growth for native-born Americans.”
During a June 26 event on tax cuts in the upcoming OBBB legislation, Trump again lauded the idea of ending tax on tips, saying: “We will deliver no tax on tips, no tax on overtime, and no tax on Social Security for our great seniors.”
Speaking about the individual impact, Trump said: “Among the countless citizens who will benefit from these tax cuts is Malachi Krazeski, a devoted mom and DoorDash driver from Ripon, Wisconsin, who uses her tip income to support her son.”
The administration cited a June 17 survey that found that 83 percent of hourly workers want to see the moratorium on taxing tips become law.
The report stated, “These results suggest that any measure increasing the amount of immediately available income—such as untaxed tips—would provide meaningful, stabilizing support for a large segment of the hourly workforce.”
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