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No Tax on Tips” Bill Passes Senate – Here’s What It Means for You
💰 “No Tax on Tips” Provision Passes Senate: What It Means for Workers and the Economy
A major component of President Donald Trump’s economic agenda — the “No Tax on Tips” proposal — has taken a significant step toward becoming law. The provision was recently passed by the U.S. Senate and included in the broader Republican tax and spending bill approved by the House. This development marks a key milestone in what was one of Trump’s most popular campaign promises during the 2024 election cycle.
But while the policy has broad bipartisan support, it also comes with controversy , cost concerns , and questions about its real-world impact .
Let’s break down what you need to know.
📌 What Is the “No Tax on Tips” Bill?
The No Tax on Tips Act , introduced by Senator Ted Cruz (R-TX) and co-sponsored by Democratic Senator Jack Rosen (D-NV), proposes a new federal income tax deduction for tipped workers who earn less than $160,000 annually in 2025.
- Only tips reported to employers and documented on W-2 forms would qualify.
- The provision in the House version is set to expire after four years.
- The Senate version , however, makes the deduction permanent .
This means eligible service workers — including servers, bartenders, delivery drivers, and others — could see more money in their pockets by not paying federal income taxes on their tip earnings.
Payroll taxes (Social Security and Medicare), as well as state and local taxes, will still apply.
⚖️ Key Provisions in the GOP Budget Bill
The “No Tax on Tips” clause is just one part of the larger GOP tax and spending package , which includes:
💸 Cost to the Federal Government
While the policy is popular among workers and employers, it’s not without cost.
According to analysis:
- The House version would add $40 billion to the deficit over 4 years .
- The Senate’s permanent version could cost over $100 billion over a decade , according to the Committee for a Responsible Federal Budget .
Michael Peterson of the Peter G. Peterson Foundation called the move “deficit-financing tax cuts,” noting that the benefit is relatively small for a narrow group of workers, while the national debt continues to rise.
👷 Who Will Benefit?
Tipped workers make up about 1.7% of the U.S. workforce , according to the Census Bureau. However, not all of them will benefit equally.
Pros:
- Middle-income service workers may see an average tax cut of $1,800 per year.
- Employers in the hospitality and restaurant industries have praised the bill, saying it helps attract and retain staff.
Cons:
- Around one-third of tipped workers earn too little to owe federal income tax , meaning they won’t see any benefit.
- Critics argue the policy favors higher-earning tipped workers rather than those most in need.
- Non-tipped workers — such as factory laborers or office employees — are left out entirely.
“If your goal is to help the poorest service workers, this is probably not the way to do it,” said Michael Lynn , professor at Cornell University.
🗣️ Reactions From Stakeholders
Supporters
- National Restaurant Association : Called the bill “sensible legislation” that could help attract talent.
- Culinary Workers Union (Nevada) : Endorsed the plan, citing benefits for casino and hotel workers.
Critics
- One Fair Wage : Warns the bill offers only “moderate relief for some” and fails to address deeper issues like the federal tipped minimum wage .
- Maya MacGuineas, CRFB President : Called the move “egregious” and criticized lawmakers for increasing the national debt instead of pursuing broader, fairer reforms.
