
The land of tips: Senate approves tax exemption for workers
With bipartisan support and without objection, the U.S. Senate passed the No Tax on Tips Act, one of Trump's signature campaign promises.
In a surprise move, the U.S. Senate unanimously passed the No Tax on Tips Act, establishing a tax deduction of up to \$25,000 a year for declared tips earned by workers making less than \$160,000. The bill, introduced by Republican Senator Ted Cruz and supported by Democratic senators from states with large service workforces, such as Nevada, is part of President Donald Trump’s tax agenda.
As reported by NBC News, Senator Jacky Rosen (D-Nev.) brought the bill to the floor on Tuesday, and none of the 99 other senators objected — an unusual move for a tax bill, which typically follows a more complex path. “Nevada has more tipped workers per capita than any other state. So this bill would mean immediate financial relief for countless hard-working families,” Rosen said.
The legislation amends the Internal Revenue Code to allow workers to deduct from their taxable income all cash tips reported to employers, up to a limit of \$25,000 per year. As stated in the bill text, it applies only to occupations that “traditionally and customarily” received tips before December 31, 2023. The Treasury Department is required to publish an official list within 90 days.
According to The Hill, Trump first floated the idea at a rally in Nevada in June 2024, presenting it as a core promise to working-class voters. “So if you’re a restaurant worker, a server, a valet, a bellhop, a bartender, or one of my caddies — your tips will be 100 percent yours,” Trump told the crowd.
However, experts quoted by NBC News and The New York Times have voiced concerns. Many tipped workers don’t pay federal income tax due to low wages, making the benefit marginal. Some worry it might lead employers to classify wages as tips to avoid taxes.
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As The New York Times explains, although the deduction reduces taxable income, tips remain part of payroll for Medicare and Social Security contributions. Employers will continue to owe taxes on them and may still benefit from the 45B tip credit — which the new bill expands to include beauty services such as salons and spas.
The bill does not change federal rules barring kitchen staff from receiving tips directly unless part of a legal tip pool. Nor does it alter the \$7.25 federal minimum wage or the \$2.13 tipped wage base, unchanged since 1991.
While the measure won’t necessarily increase tipping prompts, The Times notes it may motivate businesses to encourage tipping as a retention strategy.
The legislation now heads to the House, where Republicans are debating whether to pass it standalone or fold it into the broader One Big Beautiful Bill Act. Senator Rosen urged her colleagues to avoid linking it with social program cuts: “We shouldn’t be forcing working families to choose between keeping their health care or keeping their tips,” she said, according to The Hill.
Senator Ted Cruz celebrated the bipartisan success: “One way or another, No Tax on Tips is going to become law and give real relief to hard-working Americans,” he said on the Senate floor, quoted by NBC News.
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