The U.S. Senate unanimously approved the "No Tax on Tips Act" on May 20, 2025, marking a significant step toward eliminating federal income taxes on gratuities for millions of service industry workers. This bipartisan legislation, which would create a tax deduction of up to $25,000 for eligible tipped wages, now advances to the House of Representatives for consideration.
What Is the No Tax on Tips Act?
The bill, introduced by Senator Ted Cruz (R-Texas) and co-sponsored by Senator Jacky Rosen (D-Nevada) among others, aims to exempt cash tips from federal income tax through a substantial tax deduction. The legislation allows qualifying workers to deduct up to $25,000 in reported tips from their taxable income.
Key features of the bill include:
A tax deduction for "cash tips" (including tips received via cash, credit/debit cards, and tip-sharing arrangements)
Eligibility limited to workers earning up to $160,000 annually (with adjustments for inflation)
Focus on traditionally tipped occupations such as food service workers, bartenders, hair stylists, and nail technicians
Requirement that tips must be reported to employers for payroll tax withholding
This tax relief measure represents the fulfillment of one of President Trump's campaign promises and has garnered rare bipartisan support in today's politically divided climate.
What Happens Next?
Now that the Senate has passed the bill via unanimous consent, several important steps remain before it becomes law:
House Consideration
The bill now moves to the House of Representatives, where lawmakers must decide whether to:
Pass the standalone Senate bill as is
Incorporate the measure into the larger "One Big, Beautiful Bill Act," which contains similar provisions for eliminating taxes on tips along with other tax cuts and policy changes
The House Republican leadership is currently working to secure votes for their broader tax package, which could complicate or delay the process for the standalone tip tax bill.
Presidential Signature
If the House approves the bill, it would then head to President Trump's desk for his signature. Given that this policy originated as one of his campaign promises, he is expected to sign it into law.
Senator Cruz expressed optimism about the bill's prospects, stating, "One way or another, no tax on tips is going to become law".
Implications for Payroll if the Bill Becomes Law
If enacted, the No Tax on Tips Act would have several important implications for both employers and employees:
For Employers:
Employers would still need to maintain most of their current payroll practices regarding tips:
Continue reporting all tips on employees' W-2 forms
Continue withholding and remitting Social Security and Medicare taxes (FICA taxes) on tips
Process any W-4 adjustments that employees might make to reduce their federal income tax withholding
As the bill is structured as a deduction rather than an exemption, employers would generally continue their current reporting and withholding procedures.
For Employees:
The bill creates some changes for eligible tipped workers:
Ability to deduct up to $25,000 in reported tips from federal taxable income
Potential to adjust W-4 forms to reduce federal income tax withholding throughout the year
Continued obligation to pay Social Security and Medicare taxes on tips
Continued requirement to report all tips of $20 or more per month to employers
It's important to note that the tax deduction would only apply to federal income tax, not to state or local taxes, unless states pass their own similar legislation.
When Would These Changes Take Effect?
If the No Tax on Tips Act is approved by the House and signed into law by President Trump, the new tax deduction would likely take effect for the 2025 tax year. This means workers could claim the deduction when filing their taxes in early 2026 for income earned in 2025.
The Senate version appears to be permanent, while the House version in their larger bill would limit the deduction to tax years 2025 through 2028.
Who Would Benefit Most?
According to analysts, approximately 2.5% of the U.S. workforce are in tipped occupations. Nevada has the highest concentration of tipped workers in the nation, with more than 5% of all Nevada workers relying on tips as a key part of their income.
The impact varies across income levels:
About 37% of tipped workers earn so little that they don't currently pay federal income taxes, so they would see limited benefit
Middle-income tipped workers would likely see the most significant tax savings
Workers earning above $160,000 would not be eligible for the deduction
The bill is estimated to cost approximately $110 billion in federal revenues over the next decade.
TL;DR
The Senate's unanimous passage of the No Tax on Tips Act represents a rare moment of bipartisan cooperation on tax policy. As the bill moves to the House, service industry workers and employers should monitor developments closely, as this legislation could significantly impact take-home pay and tax filing procedures for millions of Americans.
While the bill still faces hurdles before becoming law, the strong support from both parties suggests that some form of tax relief for tipped workers is likely to be implemented in the near future. As Senator Cruz noted, "The likelihood of no tax on tips becoming law is nearly certain"
About Rollfi
Rollfi provides the fastest way for Banks, Vertical SaaS platforms, Accounting Firms, and Fintechs to integrate payroll and benefits into their offerings through our white-label solutions + robust APIs. By leveraging Rollfi’s infrastructure, businesses can unlock new revenue streams, increase customer retention, and access valuable payroll data insights. With rapid deployment and comprehensive coverage, Rollfi transforms your platform into a one-stop-shop for essential services, driving growth and enhancing customer satisfaction.
The U.S. Senate unanimously approved the "No Tax on Tips Act" on May 20, 2025, marking a significant step toward eliminating federal income taxes on gratuities for millions of service industry workers. This bipartisan legislation, which would create a tax deduction of up to $25,000 for eligible tipped wages, now advances to the House of Representatives for consideration.
What Is the No Tax on Tips Act?
The bill, introduced by Senator Ted Cruz (R-Texas) and co-sponsored by Senator Jacky Rosen (D-Nevada) among others, aims to exempt cash tips from federal income tax through a substantial tax deduction. The legislation allows qualifying workers to deduct up to $25,000 in reported tips from their taxable income.
Key features of the bill include:
A tax deduction for "cash tips" (including tips received via cash, credit/debit cards, and tip-sharing arrangements)
Eligibility limited to workers earning up to $160,000 annually (with adjustments for inflation)
Focus on traditionally tipped occupations such as food service workers, bartenders, hair stylists, and nail technicians
Requirement that tips must be reported to employers for payroll tax withholding
This tax relief measure represents the fulfillment of one of President Trump's campaign promises and has garnered rare bipartisan support in today's politically divided climate.
What Happens Next?
Now that the Senate has passed the bill via unanimous consent, several important steps remain before it becomes law:
House Consideration
The bill now moves to the House of Representatives, where lawmakers must decide whether to:
Pass the standalone Senate bill as is
Incorporate the measure into the larger "One Big, Beautiful Bill Act," which contains similar provisions for eliminating taxes on tips along with other tax cuts and policy changes
The House Republican leadership is currently working to secure votes for their broader tax package, which could complicate or delay the process for the standalone tip tax bill.
Presidential Signature
If the House approves the bill, it would then head to President Trump's desk for his signature. Given that this policy originated as one of his campaign promises, he is expected to sign it into law.
Senator Cruz expressed optimism about the bill's prospects, stating, "One way or another, no tax on tips is going to become law".
Implications for Payroll if the Bill Becomes Law
If enacted, the No Tax on Tips Act would have several important implications for both employers and employees:
For Employers:
Employers would still need to maintain most of their current payroll practices regarding tips:
Continue reporting all tips on employees' W-2 forms
Continue withholding and remitting Social Security and Medicare taxes (FICA taxes) on tips
Process any W-4 adjustments that employees might make to reduce their federal income tax withholding
As the bill is structured as a deduction rather than an exemption, employers would generally continue their current reporting and withholding procedures.
For Employees:
The bill creates some changes for eligible tipped workers:
Ability to deduct up to $25,000 in reported tips from federal taxable income
Potential to adjust W-4 forms to reduce federal income tax withholding throughout the year
Continued obligation to pay Social Security and Medicare taxes on tips
Continued requirement to report all tips of $20 or more per month to employers
It's important to note that the tax deduction would only apply to federal income tax, not to state or local taxes, unless states pass their own similar legislation.
When Would These Changes Take Effect?
If the No Tax on Tips Act is approved by the House and signed into law by President Trump, the new tax deduction would likely take effect for the 2025 tax year. This means workers could claim the deduction when filing their taxes in early 2026 for income earned in 2025.
The Senate version appears to be permanent, while the House version in their larger bill would limit the deduction to tax years 2025 through 2028.
Who Would Benefit Most?
According to analysts, approximately 2.5% of the U.S. workforce are in tipped occupations. Nevada has the highest concentration of tipped workers in the nation, with more than 5% of all Nevada workers relying on tips as a key part of their income.
The impact varies across income levels:
About 37% of tipped workers earn so little that they don't currently pay federal income taxes, so they would see limited benefit
Middle-income tipped workers would likely see the most significant tax savings
Workers earning above $160,000 would not be eligible for the deduction
The bill is estimated to cost approximately $110 billion in federal revenues over the next decade.
TL;DR
The Senate's unanimous passage of the No Tax on Tips Act represents a rare moment of bipartisan cooperation on tax policy. As the bill moves to the House, service industry workers and employers should monitor developments closely, as this legislation could significantly impact take-home pay and tax filing procedures for millions of Americans.
While the bill still faces hurdles before becoming law, the strong support from both parties suggests that some form of tax relief for tipped workers is likely to be implemented in the near future. As Senator Cruz noted, "The likelihood of no tax on tips becoming law is nearly certain"
About Rollfi
Rollfi provides the fastest way for Banks, Vertical SaaS platforms, Accounting Firms, and Fintechs to integrate payroll and benefits into their offerings through our white-label solutions + robust APIs. By leveraging Rollfi’s infrastructure, businesses can unlock new revenue streams, increase customer retention, and access valuable payroll data insights. With rapid deployment and comprehensive coverage, Rollfi transforms your platform into a one-stop-shop for essential services, driving growth and enhancing customer satisfaction.