Table of Contents
Overview of the ‘No Tax on Tips Act’
On May 20, 2025, the U.S Senate unanimously passed the ‘No Tax on Tips Act,’ a bipartisan initiative aimed at exempting ceratin tips from federal income tax. The bill, introduced by Senator Ted Cruz (R-TX) and co sponsored by Senator Jacky Rosen (D-NV), proposes amending the Internal Revenue Code to allow eligible employees to deduct up to $25,000 in tips from their taxable income annually.
Eligibility Criteria for Workers
To qualify for the tax exemption:
- Employees must work in occupations that traditionally receive tips, such as waiters, bartenders, and delivery drivers, as of December 31, 2023.
- Annual compensation must be less than $160,000 for the 2024-2025 tax year, with adjustments for inflation in subsequent years.
- Tips must be reported to employers for payroll tax withholding purposes.
The Treasury Secretary is mandated to publish a list of eligible occupations within 90 days of the bills’s enactment.
Implications for Employers
The legislation also expands the business tax credit for employers by including payroll taxes paid on tips received in connection with services like barbering, hair care, nail care, esthetics, and spa treatments. This aims to alleviate the financial burden on businesses in industries where tipping is customary.
Next Steps in the Legislative Process
Having passed the Senate, the bill now moves to the House of Representativevs for consideration. Speaker Mike Johnson (R-LA) has indicated prioritization of this measure, with potential vote anticipated soon. If enacted, the law would take effect in the 2025 tax year, providing immediate relief to eligible workers.
