TL/DR –
The Republican-led Senate has passed the No Tax on Tips Act, which would create a tax deduction worth up to $25,000 for tips. Introduced by Sen. Ted Cruz, the new legislation would only benefit cash tips reported for withholding on payroll taxes and would be capped for employees earning $160,000 or less by 2025. Despite the legislation achieving bipartisan support, critics argue that it could incentivize employers to reclassify wages as tips for tax savings, and that it reinforces a two-tiered pay system that they wish to replace with a universal pay rate.
Senate Passes No Tax on Tips Act in Surprise Move
The Republican-led Senate unexpectedly passed the No Tax on Tips Act on Tuesday, a policy President Donald Trump campaigned on last year. This legislation creates a tax deduction up to $25,000 for cash tips reported by workers, capped for those earning $160,000 or less in 2025.
Unanimous Consent Process
Sen. Ted Cruz introduced the bill in January, with bipartisan co-sponsors including Senators Jacky Rosen and Catherine Cortez Masto. Brought forward using the “unanimous consent” process, the bill passed with no objections. Rosen stated the bill brings immediate financial relief for families, notably in Nevada, home to more tipped workers per capita than any other state.
Controversial Reception
This legislation follows proposals by both Trump and Vice President Kamala Harris supporting versions of the idea. The National Restaurant Association backed Cruz’s bill, while labor advocates criticized it. Critics warn it might encourage employers to reclassify wages as tips for tax savings and reinforces a two-tiered pay system.
Future of Tipping
Meanwhile, consumers express fatigue over gratuity expectations, and many are tipping less. A NBC News report found some workers are not sold on eliminating the tipped pay system, with tip tax removal not being flagged as a top priority.
Nearing Legislation
The bill now goes to the House, where Republicans aim to include it in their party-line package for Trump’s agenda. Broader Democratic support gives GOP leaders the option to pass it separately, potentially reducing the cost, or reallocating funds elsewhere. Cruz commended the bipartisan agreement: “No Tax on Tips is going to become law and give real relief to hard-working Americans.”
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