Mirror Review
May 21st, 2025
Key Points:
- In a surprising and swift move, the United States Senate unanimously approved the “No Tax on Tips Act” on Tuesday, May 20th.
- This development marks a significant step for a proposal that gained prominence as one of President Donald Trump’s 2024 campaign promises.
- The “No Tax on Tips Act” aims to provide financial relief to service industry workers by altering how their tip income is taxed.
- The bill, which saw bipartisan support, was initially introduced in January 2025 by Republican Senator Ted Cruz.
What is the ‘No Tax on Tips Act’? Key Details Explained
The core of the this act is to offer a tax break for individuals who earn tips as part of their income. Here’s a breakdown of its key provisions:
- Tax Deduction:
The legislation allows eligible workers to deduct 100% of their reported tips from their federal income taxes. This deduction is capped at $25,000.
- Eligible Tips:
The deduction applies to all reported tips, including those received in cash, by credit or debit card, or by check. These tips must be reported to employers for payroll tax purposes.
- Income Limitation:
This tax benefit is available to workers who earn $160,000 or less in the year 2025. This income threshold is designed to increase in subsequent years to account for inflation.
- Temporary Measure:
One of the news sources mentioned that this tax break might be temporary, possibly lasting through the year 2028.
- Scope of Applicability:
The bill covers both employees and independent contractors in professions where tipping is customary, such as restaurant and hospitality workers.
- Employer Tax Credits:
The bill also proposes that employers in beauty and personal care sectors (like hair, nail, and spa services) can receive a tax credit for payroll taxes they pay on tips. This expands the existing credit available for tips in food and beverage jobs. The Treasury Secretary will have the authority to determine the complete list of qualifying occupations.
An Unexpected Unanimous Approval in the Senate
The passage of the No Tax on Tips Act through the Senate was notably smooth.
The bill was brought to the Senate floor by Senator Jacky Rosen (D-Nevada) on May 20th under a “unanimous consent” request. Think of it like asking a big room if anyone objects – if no one speaks up, the proposal passes.
This method is usually saved for simpler, less debatable issues because just one “no” can stop everything.
Despite tax-related legislation often undergoing more extensive debate and complex processes, no senator objected to Senator Rosen’s request.
As a result, the bill passed with a 100-0 vote, indicating approval from all senators in attendance.
Bipartisan Backing: Why Democrats Supported the Bill
The No Tax on Tips Act garnered support from both sides of the aisle. Democratic Senators from Nevada, Jacky Rosen and Catherine Cortez Masto, were among the co-sponsors of the bill when Senator Ted Cruz introduced it.
Senator Rosen explained her support, stating the bill would offer “immediate financial relief for countless hard-working families” in her state. She highlighted that Nevada has more tipped workers per capita than any other state.
“Nevada has more tipped workers per capita than any other state. So this bill would mean immediate financial relief for countless hard-working families. ‘No Tax on Tips’ was one of President Trump’s key promises to the American people, which he unveiled in my state of Nevada. And I am not afraid to embrace a good idea, wherever it comes from,” she said.
Senate Minority Leader Chuck Schumer (D-N.Y.) also commented on the bill’s passage. In a statement, he said, “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.”
He further contrasted this with efforts to provide tax breaks for wealthier individuals, stating, “While President Trump and Republicans push tax breaks for billionaires and stick the middle class with the bill, Senate Democrats are standing strong to protect America’s working families.”
Who Stands to Benefit and Potential Economic Impacts?
The act could have several effects on workers and the economy:
- Average Savings
One research group, the Peter G. Peterson Foundation, estimates that tipped workers in the lower 60% of incomes could see their taxes go down by an average of about $1,260 a year.
- Where It Might Matter Most
According to CNBC, which got its data from a company called Square, restaurant workers in states like Alaska, Wyoming, South Dakota, Kansas, Wisconsin, and West Virginia could see some of the biggest benefits. This is because tips make up a really big part of their total earnings in those areas.
- How Much are Tips Worth?
Speaking of which, for many restaurant workers, tips aren’t just a little extra – they make up about 23% of their total pay, on average. And just as a reminder, workers are already supposed to report any tip income over $20.
- Any Potential Problems?
While it sounds good for many, the Tax Foundation (a group that studies US tax policies) raised a couple of potential issues. They said this Act could create unfair tax differences between working-class folks who get tips and those who don’t. They also worried it might make employers less likely to give their workers raises in their basic pay, relying more on tips instead.
What’s Next for the ‘No Tax on Tips Act’?
Now that the Senate has given its okay, the “No Tax on Tips Act” has to go to the U.S. House of Representatives. That’s the next big step.
Reports say that Republicans in the House have been thinking about including this idea in a bigger package of laws related to President Trump’s plans.
But because so many Democrats also like this specific bill, there’s a chance it could just be voted on by itself. Passing it alone might make the bigger package less costly or free up money for other things.
Senator Ted Cruz is pretty sure it’s going to become law one way or another. He said, “Whether it passes free-standing or as part of the bigger bill, one way or another, ‘No Tax on Tips’ is going to become law and give real relief to hard-working Americans”.
After the Senate vote, he praised everyone for working together, saying, “Today, I went with Senator Rosen to the floor to secure Senate passage of the bill. This legislation will have a lasting impact on millions of Americans by protecting the hard-earned dollars of blue-collar workers, the very people who are living paycheck-to-paycheck. I urge my colleagues in the House to pass this important bill and send it to the President’s desk to be signed into law”.
So, the journey for this act isn’t over yet. Many people in the service industry will be watching closely to see what the House decides, as it could mean a real difference in their paychecks.
