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By Aliss Higham
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Lawmakers in the Senate have approved a bill that would eliminate federal income taxes on tipped income.
Why It Matters
Nixing income taxes was one of President Donald Trump's top policy promises during his 2024 election campaign, and the idea has also been embraced by Democrats.
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What Does the No Tax on Tips Bill Do?
The No Tax on Tips Act would introduce a new tax deduction of up to $25,000 for tips, with certain restrictions.
It was introduced in January by Texas Senator Ted Cruz, along with a bipartisan group of co-sponsors, including Nevada Democratic Senator Jacky Rosen. Republicans permitted Rosen to advance the bill through a unanimous consent agreement—a procedure that allows any senator to request passage of legislation on the Senate floor, provided no other senator objects.
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Who Does It Affect?
The new tip deduction applies only to cash tips that meet both of the following conditions:
- The tips are received by employees working in occupations where tipping is customary.
- The tips are reported to the employer for payroll tax withholding purposes.
(Under current law, employees must report tips totaling more than $20 per month to their employer.)
Employees whose annual pay exceeds a specified threshold in the previous tax year—$160,000 in 2025, adjusted annually for inflation—are not eligible to claim the new tip deduction.
When Does It Take Effect?
The bill has only passed the Senate, meaning it has not yet become law. If the bill becomes law, the treasury secretary will have 90 days to provide lawmakers with a list of occupations that customarily received tips as of December 31, 2023.
The bill would take effect for all taxable years beginning after December 31, 2024.
What People Are Saying
Senator Jacky Rosen said in her floor remarks: "Nevadans, our families, are being squeezed, and we need real relief. For some, many service and hospitality workers, tips aren't extra, it's part of their income that they use to make ends meet."
Senator Ted Cruz said on the Senate floor: "Whether it passes free-standing or as part of the bigger bill, one way or another, 'No Tax on Tips' is going to become law and give real relief to hardworking Americans. So I'm proud of what the Senate just did, and I commend Democrats and Republicans, even at a time of partisan division, coming together and agreeing on this commonsense policy."
Senate Minority Leader Chuck Schumer said in a statement seen by NBC News: "Working Americans—from servers, to bartenders, delivery drivers, and everything in between—work hard for every dollar they earn and are the ones who deserve tax relief, not the ultra-rich. While President Trump and Republicans push tax breaks for billionaires and stick the middle class with the bill, Senate Democrats are standing strong to protect America's working families."
What Happens Next
The bill now heads to the House of Representatives.
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