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| no tax on tips act |
On May 20, 2025, the United States Senate unanimously passed the “No Tax on Tips Act,” a significant piece of legislation that proposes to exempt tipped income from federal income tax. This development marks a major milestone for millions of workers in industries such as food service, hospitality, beauty, and personal care, where tipping constitutes a substantial portion of earnings.
Originally introduced as part of former President Donald Trump's policy platform, the bill was championed in the Senate by Democratic Senator Jacky Rosen of Nevada a state heavily reliant on tip-based employment. The bipartisan support underscores a shared recognition of the financial struggles faced by service workers, especially in high-tourism and service-oriented states.
Under the provisions of this act, employees earning tips will not be required to pay federal income tax on that portion of their income for the tax years 2025 through 2028. However, this benefit will not apply to high-income earners, defined as individuals with an annual income exceeding $160,000 in 2025, with inflation adjustments for subsequent years.
Furthermore, the legislation extends payroll tax credits for employers in the beauty and personal care sectors, a provision previously limited primarily to the restaurant industry. This expansion aims to incentivize proper reporting of tips and reduce the tax burden on small business owners.
While the bill’s Senate passage was decisive, its journey is not over. The legislation now moves to the House of Representatives, where it will be considered alongside other tax reforms in a broader package referred to as the “One, Big, Beautiful Bill.” Some House Democrats have expressed concerns that the full package may include disproportionate benefits for high-income taxpayers and large corporations, possibly complicating the fate of the tips provision.
If enacted, the “No Tax on Tips Act” could dramatically alter the financial outlook for service workers across the country, offering them a much-needed boost in take-home pay. However, the bill's opponents argue that such exemptions might encourage wage stagnation or disproportionately benefit businesses that already underpay their staff.
For now, industry groups and labor advocates are watching the House debate closely. Should the bill pass both chambers and be signed into law, it could set a new precedent in how the federal government treats non-wage income, especially in sectors long reliant on gratuities.
This policy shift arrives at a time of growing attention to worker rights and fair compensation, signaling a potential rebalancing of tax burdens in favor of those at the front lines of customer service.
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