US Senate Passes Bill to Eliminate Taxes on Tips
On Tuesday, the U.S. Senate unanimously approved a legislation that would remove taxes on tips going up to $25,000. This bill, pushed through by the Republican-led Senate, introduces a tax deduction aimed at cash tips that employees declare for payroll tax purposes.
The tax benefit applies to individuals earning $160,000 or less annually and is limited to cash tips from jobs typically associated with tipping, which includes roles such as waitstaff and beauty professionals.
This legislative move traces back to repeated proposals made by President Donald Trump during his campaign in the lead-up to the November election. Senator Ted Cruz from Texas has taken the lead on this legislation, resulting in a rare example of significant legislative progress.
According to Yale University’s Budget Lab, there are about four million workers in tipped professions this year. The new bill stipulates that employees must report tips to their employers for payroll tax withholding, a change from the existing law that currently only requires reporting of tips exceeding $20 per month.
The Budget Lab also indicated that the average non-tipped worker in 2023 was at least a decade older than the average tipped worker, with about one-third of tipped employees being under 25 years old, and 13% classified as teenagers.
If enacted, this new bill is projected to reduce federal revenues by $110 billion over the coming decade, according to the Peter G. Peterson Foundation. Senator Jacky Rosen, a Democrat from Nevada, expressed her support for Trump’s proposal during her speech, emphasizing the need for relief for families who rely on tips as an essential part of their income.
“I’m not afraid to embrace a good idea, wherever it comes from. So I agreed we need to get this done,” Rosen noted. She added, “Nevadans, our families, are being squeezed, and we need real relief. For many service and hospitality workers, tips aren’t extra; it’s part of their income that they use to make ends meet.”
The Senate’s approval occurs as Republicans seek to move forward with an extensive tax cut and spending plan that will provide tax relief on tips over the next four years. The next step involves gaining approval from the House of Representatives before it can be signed into law.
