The U.S. Senate has unanimously passed the No Tax on Tips Act, a bill proposing a tax deduction of up to $25,000 on reported cash tips for workers earning $160,000 or less annually. The bill, introduced by Sen. Ted Cruz (R-TX) and co-sponsored by a bipartisan group, now moves to the House.
The legislation applies to traditionally tipped workers, with eligible sectors to be defined by the Treasury Department. Employees can deduct the full amount of their cash tips, including those received via debit and credit cards, up to the $25,000 cap. The income eligibility threshold is set at $160,000 for 2025 and will adjust annually with inflation.
While the National Restaurant Association supports the bill, some tax experts and labor advocates have voiced concerns. Detractors argue that most low-income tipped workers already pay minimal or no federal income tax. They also suggest the policy could encourage wage reclassification by employers.
The Senate version differs from the House proposal by including a cap on deductible tip income and making the deduction permanent. The House bill has no cap and would expire at the end of 2028. The Congressional Budget Office has yet to evaluate the Senate bill's cost.
Senate Democrats oppose passing the tip tax provision as part of a larger budget bill with cuts to Medicaid and food assistance. They prefer the bipartisan bill to pass independently. Senate Minority Leader Chuck Schumer praised the measure, highlighting its significance for everyday workers.