The U.S. Senate unanimously passed the “No Tax on Tips Act” on May 21, 2025, sparking renewed debate over the role of gratuities in service‐industry compensation. Sponsored by Senators Ted Cruz (R-TX), Jacky Rosen (D-NV), and Catherine Cortez Masto (D-NV), the bill—designated S. 129—aims to amend the Internal Revenue Code to exempt a portion of reported cash tips from federal income taxation for qualifying workers earning up to $160,000 annually (The Guardian, Food & Wine). Proponents argue that by permitting a deduction of up to $25,000 per taxpayer per year, the Act would put “cash back in the pocket” of servers, bartenders, and other tipped employees, while potentially helping restaurants recruit and retain staff amid ongoing labor shortages (Food & Wine).
Key Provisions
- Deduction Limit: Up to $25,000 in reported cash tips may be deducted from taxable income each year.
- Income Cap: Eligibility phases out for taxpayers with adjusted gross income exceeding $160,000.
- Occupation List: The Treasury Department must publish, within 90 days of enactment, a non‐exhaustive list of occupations that “traditionally and customarily receive tips” as of December 31, 2023 (The Guardian).
- Reporting Requirement: Tips must be reported to employers under existing IRS guidelines to qualify for the deduction.
Legislative Context
Originally introduced in January 2025 by Senator Cruz, the bill garnered bipartisan support in the Senate, reflecting pledges made during the 2024 presidential campaigns by both former President Donald Trump and Vice President Kamala Harris (The Guardian). With Senate passage being unanimous, the Act now advances to the U.S. House of Representatives, where its future may hinge on whether it is considered as standalone legislation or as part of a larger tax‐and‐immigration package championed by House Republicans (Food & Wine).
Fiscal Impact
Analyses suggest the deduction could reduce federal revenues by an estimated $40–120 billion over the next decade, depending on whether the provision is made permanent (Food & Wine). By contrast, the broader “One Big Beautiful Bill Act,” which includes the No Tax on Tips provision alongside other tax cuts and spending changes, is projected by the Congressional Budget Office to add roughly $3.8 trillion to the deficit from 2026 to 2034, offset partly by significant cuts to Medicaid and SNAP (Barron’s).
Support and Anticipated Benefits
The National Restaurant Association has endorsed the bill, arguing that eliminating taxes on tips would increase take‐home pay for a significant segment of the foodservice workforce and ease recruitment challenges (Food & Wine). Senator Cruz echoed this sentiment on the Senate floor, stating: “This is sensible, bipartisan legislation that supports employees and operators alike” (Food & Wine).
Criticism and Concerns
Economic and labor experts caution that the Act may deliver only modest benefits to many tipped workers. Brookings Institution data indicate that 37 percent of tipped employees already pay no federal income tax due to low wages, meaning the new deduction would not affect them (The Guardian). Critics also warn that the incentive to rely on gratuities could weaken efforts to raise base pay or address the sub-minimum wage provisions that apply to tipped occupations (The Guardian).
Next Steps and Outlook
As the House deliberates, lawmakers face competing priorities: some seek to detach the No Tax on Tips Act for a prompt, standalone vote, while others may prefer to keep it within a larger, more controversial legislative package that includes immigration policy changes and additional tax measures (Food & Wine). Whether the deduction survives intact—or at all—will depend on the House’s appetite for targeted tax cuts versus broader structural reforms in how service workers are compensated.
This article synthesizes legislative updates, policy analyses, and stakeholder perspectives to provide a comprehensive overview of the No Tax on Tips Act as it moves through Congress.
