What to know about the No Tax on Tips Act and who it affects
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Sarah Grillo/Axios
The no-tax-on-tips provision is getting closer to becoming a reality for the nation's tipped workers.
Why it matters: The House passed President Trump's "One Big Beautiful Bill Act" Thursday, which includes proposed legislation to eliminate federal income tax on tips.
- The vote on the massive bill was 215-214 and it would extend Trump's 2017 tax cuts, makes cuts to social safety programs and would do away with tax on overtime.
- The bill goes to the Senate, which has to approve it before it goes to Trump to sign into law. The Senate is still expected to make substantial changes.
What is the No Tax on Tips Act?
The big picture: The Senate passed a separate "No Tax on Tips Act" or Bill S. 129 on Tuesday, which proposes amending the Internal Revenue Code to exempt "cash tips" from federal income tax.
- Eligible employees will be allowed to claim a 100% deduction of up to $25,000 per tax year.
- Sen. Ted Cruz (R-Texas) introduced the bill, which was sponsored by a bipartisan group of senators, in January.
Which workers would be eligible for tax exemption
Zoom in: Waiters, bartenders and delivery drivers are examples of employees who could become eligible for the tax exemption, Senate Minority Leader Chuck Schumer (D-New York) said in a statement.
- Tipped workers tend to be lower income — the median weekly wage for tipped occupations was $538 in 2023 compared to $1,000 for non-tipped workers, according to estimates from The Budget Lab at Yale University.
- Roughly 4 million U.S. workers were in tipped occupations in 2023 or 2.5% of all employment, per Yale Budget Lab.
- To qualify for the tax deduction, there would be a $160,000 earnings limit for 2025, which would be indexed for inflation yearly.
When would no tax on tips start?
What we're watching: If approved, no tax on tips is expected to apply to taxable years beginning after Dec. 31, 2024.
- The House version sets a Dec. 31, 2028, end date for the tax deduction.
Current IRS tax rule on tips
How it works: The Internal Revenue Service says current workers who receive cash tips of $20 or more monthly must report those earnings to employers.
- These tips can include funds received directly from customers in cash, tips paid with a credit card or tip-sharing from other employees.
Editor's note: This story was updated with the House passing legislation Thursday.
More from Axios:
