Senate Passes 'No Tax on Tips' Act in Unanimous Vote
The U.S. Senate has approved the 'No Tax on Tips' Act, aiming to eliminate federal income tax on tips, with bipartisan support.
In a surprising move on May 20, 2025, the U.S. Senate passed the "No Tax on Tips" Act with a unanimous vote, fulfilling a campaign promise by former President Donald Trump and receiving bipartisan support.
The "No Tax on Tips" Act, introduced by Senator Ted Cruz (R-TX) on January 16, 2025, seeks to exempt cash tips from federal income tax. The bill allows taxpayers to claim a 100% deduction for cash tips received during the taxable year, up to a maximum of $25,000. To qualify, the tips must be reported to the employer as required by law.
The Rare Bipartisan Vote
The legislation has garnered support from both parties. Senator Jacky Rosen (D-NV) co-sponsored the bill, emphasizing its importance for Nevada's service and hospitality workers. The National Restaurant Association has also endorsed the act, highlighting its potential to benefit restaurant workers and small businesses.
While the bill aims to provide financial relief to tipped workers, concerns have been raised about its potential impact on low- and moderate-wage employees. Critics argue that the benefits may be limited for those already exempt from income taxes due to low earnings. Additionally, there is apprehension about the possibility of high-income professionals reclassifying their income as tips to exploit the tax exemption.
What’s Next
The "No Tax on Tips" Act now moves to the House of Representatives, where Speaker Mike Johnson (R-La.) is prioritizing the broader tax measure and aims to bring it to a vote by Wednesday evening. The outcome in the House will determine the future of this legislation.
The passage of this bill aligns with broader tax reform efforts, including the extension of the 2017 tax cuts and other proposed tax breaks. However, these initiatives have faced criticism for potentially increasing the national debt and benefiting higher-income individuals disproportionately.
In addition to federal discussions, several states are considering similar measures to exempt tip income from state taxes. States like Arizona, California, and New York have proposed bills addressing the taxation of tips, reflecting a growing trend to support service industry workers at the state level.
