Senate Passes "No Tax on Tips Act", Aided by Bipartisan Support

Strategic Insights -

The US Senate has surprisingly passed the "No Tax on Tips Act", a bill championed by President Donald Trump during his presidential campaign and later adopted by former Vice President Kamala Harris. The bipartisan legislation would provide a tax deduction of up to $25,000 for cash tips for eligible employees in the food, drink, and beauty industries. If signed into law, the bill would amend the IRS code to allow workers in these industries to claim a 100 percent tax deduction on tips given in cash, credit, debit cards, and checks.

Key Takeaways:

  • The bill was introduced by Texas Sen. Ted Cruz in January and has been brought up for "unanimous consent" by Democrat Sen. Jacky Rosen of Nevada.
  • The legislation aims to protect the "hard-earned dollars" of blue-collar workers, with Cruz stating that it will have a lasting impact on millions of Americans.
  • Senate minority leader Chuck Schumer credited Rosen for moving the legislation forward and took a swipe at President Trump, accusing Republicans of pushing tax breaks for billionaires while leaving the middle class with the bill.
  • The bill would amend the IRS code to allow Americans working in the food, drink, and beauty industry to claim a 100 percent tax deduction on tips given in cash, credit, debit cards, and checks.
  • Those providing beauty services, defined as barbering and hair care, nail care, esthetics, body and spa treatments, would also be eligible for the tax exemption.
  • Anyone earning above $160,000 does not qualify for the tax exemption.
  • An estimated 4 million workers in the U.S. were employed in tipped occupations in 2023, with more than a third facing no federal income tax in 2022.

Statistics:

  • Up to $25,000 tax deduction for cash tips for eligible employees.
  • 3.4 million workers in the U.S. estimated to be employed in tipped occupations in 2023.
  • 1.4 million workers facing no federal income tax in 2022, even before accounting for tax credits.
  • 100% tax deduction on tips given in cash, credit, debit cards, and checks for eligible employees.
  • 90-day period for the Treasury Secretary to publish a list of occupations which traditionally and customarily received tips on or before December 31, 2023.

Sources:

  • The Republican-led Senate, www.republicans.senate.gov (article on the "No Tax on Tips Act")
  • The Budget Lab at Yale, budgetlab.yale.edu (research on tipped workers in the US)
  • Getty Images, www.gettyimages.com (image of the Senate passing the bill)