The Senate, aided by Democratic members, passed a bill on Tuesday that aims to eliminate federal taxes on tips, aligning with some of President Trump’s prominent campaign promises.
Senator Jackie Rosen (D-Nev.) introduced the “no tax on tips” legislation, although Senator Ted Cruz (R-Texas), the bill’s sponsor, opted not to present it directly. The bill received unanimous consent, a process typically used for routine legislative matters.
Now it moves to the House of Representatives for further consideration.
Here’s what to know about the legislation:
Trump’s Proposal
Trump first proposed exempting federal taxes on tips during a rally in Nevada back in June 2024. This topic resonated significantly with working-class voters throughout the campaign.
Polling indicates a broad national support for this initiative, with particularly strong backing in Nevada. State officials, including Senator Rosen and Senator Katherine Cortez Masto (D-Nev.), report that roughly 25% of Nevada’s workforce depends on tips.
During his visit to Nevada following the election, Trump attributed part of his victory there to the popularity of this policy among service industry workers.
“In the coming weeks, I will work with Congress to cut taxes for workers, families, and small businesses, and, crucially, we’ll eliminate taxes on tips,” he told attendees on his first trip back to the state.
He added a lighthearted comment about caddies, saying, “If I play badly, I always blame my caddies.” It’s a bit of a joke, but it underscores his connection with service workers.
Details of the Bill
The legislation aims to modify the Internal Revenue Code to create a federal income tax credit specifically for cash tips, including those received via credit or debit cards.
Employees could claim a 100% income tax deduction for tips, up to $25,000 annually, although only those tips reported to employers qualify.
This tax exemption generally covers roles that have customarily received tips before the cutoff date of December 31, 2023. The Treasury Secretary is expected to list the relevant occupations within 90 days post-passage.
Eligibility for the deduction is limited to individuals earning less than $160,000 annually, with adjustments for inflation each year.
Timeline for Implementation
If passed as is and signed into law, the bill would take effect for taxable years beginning in 2024.
Next Steps
The House of Representatives needs to approve the bill, which is currently part of a broader legislative package that Trump is advocating for.
This tax measure—providing an exemption for tips—may either be included in a larger bill or might be pursued separately by House Republicans. There’s potential for bipartisan backing for this movement.
Democrats are suggesting that the bill should be examined independently, as some Republicans press for various issues to be addressed. The legislation could face challenges as it progresses through the Senate.
Rosen urged Republicans to act quickly on the bill, saying it should be passed “as soon as possible, without additional complications.”
She expressed concerns about possible amendments that could negatively impact other essential programs like Medicaid and SNAP, which many families depend on. “We shouldn’t force working families to choose between healthcare and their tips,” she stated, emphasizing the need for this bill to stand alone, separate from potentially harmful budget cuts.
