No Tax on Tips Act
No Tax on Tips Act
Plain Language Summary
# No Tax on Tips Act Summary **What the bill does:** The No Tax on Tips Act would allow workers in tip-based occupations to deduct up to $25,000 in tips from their federal income taxes each year. The bill also expands a tax credit for employers who pay payroll taxes on employee tips, extending it to include beauty service workers. To qualify, tips must be cash, reported to employers (as already required for tips over $20/month), and earned in jobs that customarily receive tips. **Who it affects:** The primary beneficiaries would be service industry workers—such as restaurant servers, bartenders, hotel staff, and beauty professionals—who earn tips as part of their income. However, the deduction is limited to employees earning under $160,000 in the previous year, so it doesn't apply to high-income earners.
Employers in these industries would also see expanded tax credits. **Current status:** The bill passed the U.S. Senate and is now moving through the legislative process. Like any bill, it would need to pass the House of Representatives and be signed by the President to become law.
CRS Official Summary
No Tax on Tips ActThis bill establishes a new tax deduction of up to $25,000 for tips, subject to limitations. The bill also expands the business tax credit for the portion of payroll taxes an employer pays on certain tips to include payroll taxes paid on tips received in connection with certain beauty services.Under the bill, the new tax deduction for tips is limited to cash tips (1) received by an employee during the course of employment in an occupation that customarily receives tips, and (2) reported by the employee to the employer for purposes of withholding payroll taxes. (Under current law, an employee is required to report tips exceeding $20 per month to their employer.)Further, an employee with compensation exceeding a specified threshold ($160,000 in 2025 and adjusted annually for inflation) in the prior tax year may not claim the new tax deduction for tips.Finally, the bill expands the business tax credit for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments. (Under current law, an employer is allowed a business tax credit for the amount of payroll taxes paid on certain tips received by an employee in connection with providing, delivering, or serving food or beverages.)
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