Senate Unanimously Passes No Tax on Tips Bill
The Senate unanimously approved the “No Tax on Tips” bill on May 20, establishing a tax deduction of up to $25,000 for cash tips earned by workers in tipped occupations. Under the legislation, employees in hospitality, restaurant service, beauty and spa roles who report tips to their employers for payroll tax withholding, and whose total income remains under $160,000 this year, will be able to deduct their full tip income from taxable wages. That income threshold will be adjusted annually for inflation.
Current law requires employees who receive more than $20 in tips per month to report them to their employer, but those amounts have remained fully taxable as ordinary income. The new bill also enhances a business tax credit for employers’ share of payroll taxes on tips earned in beauty, body and spa services, widening the benefit to an expanded range of tipped workers and their businesses.
Senator Jacky Rosen (D-Nev.) introduced the bill in January, and on May 20 she secured its passage through a unanimous-consent agreement, as reported by Forbes. Because no senator objected, the measure passed without a formal roll-call vote. The legislation now moves to the House of Representatives for consideration.
Estimates indicate that the deduction will save the average tipped worker in the bottom 60 percent of the income distribution roughly $1,260 in federal taxes. Many of those workers—hotel housekeepers, valets, bellhops, bartenders and servers—rely on gratuities to supplement modest base wages. According to industry data, tips comprise approximately 23 percent of total income for restaurant employees nationwide.
Support for the measure crossed party lines, with both Republican and Democratic lawmakers endorsing the relief. The White House also expressed support, reflecting campaign pledges by both former President Trump and Vice President Harris, each of whom highlighted the measure’s potential to boost take-home pay for service workers.
The American Hotel & Lodging Association praised the Senate’s action. AHLA President and CEO Rosanna Maietta said the legislation “will put more money in the pockets of the hundreds of thousands of hotel workers who receive tips, ranging from housekeepers and valets to food service professionals and bellhops.” She thanked Senators Cruz and Rosen, along with their co-sponsors, for advancing the bipartisan measure.
Despite widespread backing, some critics warn the deduction could reduce employers’ incentive to raise base wages over time. They argue that by shifting the focus to tip income, businesses might rely on gratuities to cover compensation increases rather than boosting hourly rates. Proponents counter that the bill simply ensures workers keep more of what they earn, while encouraging employers to invest in fair wage practices and to claim existing payroll tax credits.
As the bill heads to the House, its backers are confident it will receive swift approval, given its broad political support and its clear benefit to low- and middle-income service workers. If enacted, the law would take effect for the current tax year, allowing millions of tipped employees to reduce their taxable income and increase their disposable earnings, reinvigorating the hospitality and service industries by boosting worker morale and consumer spending.
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