Senate Approves No Tax on Tips: See Who Could See Big Savings This Year

The Republican-led Senate has passed the “No Tax on Tips Act”, a pledge President Donald Trump campaigned on throughout the election.

During her presidential campaign, former Vice President Kamila Harris similarly embraced this concept, as The idea gained widespread acceptance among members of both political parties.

In an unexpected turn of events, the Senate quickly approved the bipartisan bill On Tuesday, it will proceed to the House of Representatives for voting. Should it pass and be enacted as law, this legislation would introduce a tax break of up to $25,000 for eligible workers' cash gratuities.

The bill was put forward by Texas Senator Ted Cruz, who supports President Trump, back in January and was later raised again on Tuesday through "unanimous consent" by Democratic Senator Jacky Rosen from Nevada.

"This law will make a long-lasting difference for countless Americans by safeguarding the earnings of manual laborers, precisely those individuals who rely on each paycheck," Cruz stated.

Senate minority leader Chuck Schumer acknowledged Rosen, who co-authored the bill, for advancing the legislation and simultaneously criticized Trump.

“Working Americans— from servers, to bartenders, delivery drivers, and everything in between— work hard for every dollar they earn and are the ones who deserve tax relief, not the ultra-rich,” Schumer said in a statement. “While President Trump and Republicans advocate for tax cuts benefiting millionaires. And make the middle class foot the bill, Senate Democrats remain steadfast in their commitment to shield America’s working families."

Who is eligible for no tax on tips?

The bill would amend the IRS code, which would allow Americans working in the food, drink and beauty industry to claim a 100 percent tax deduction on tips given in cash, credit, debit cards and checks.

“There shall be taken into account only tips received from customers or clients in connection with the following services,” the bill states The provision, delivery, or service of food or drinks for consumption, where it is common practice for customers to tip the staff who deliver or serve these items.

This document also states that those "offering beauty services to customers or clients where tipping employees for these services is typical" qualify as well.

The beauty services outlined in the bill encompass "barbering and hair care; nail care; esthetics; body and spa treatments."

Following 90 days, should the bill be enacted into law, the Treasury Secretary must "issue a list of jobs that have historically and usually received gratuities as of December 31, 2023," according to the legislation.

However, anyone who earns more than $160,000 is ineligible for the tax exemption.

In 2023, an estimated 4 million employees in the United States worked in jobs involving tips, as reported by a policy research organization. The Budget Lab at Yale However, over a third of these tipped employees earned so little that their income was too low to be subject to federal income tax in 2022, not including any potential tax credits, according to the lab.

"This indicates that the immediate impact of the bill on the current workforce—not taking into account any behavior modifications—would be minimal," the center determined.

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