By Jasmine Clarke, Senior Correspondent
In a striking moment of bipartisan agreement, the U.S. Senate passed the “No Tax on Tips Act” on May 21, 2025, with unanimous support. The legislation proposes a major tax break for millions of service industry workers across America, allowing deductions of up to $25,000 annually on reported cash tips for individuals earning up to $160,000.
The bill, introduced by Republican Senator Ted Cruz and co-sponsored by Democratic Senators Jacky Rosen and Catherine Cortez Masto, is now on its way to the House of Representatives, where a vote is expected later this summer.
A Rare Political Accord
The unanimous Senate approval highlights a rare moment of unity in a deeply divided Congress. Originally unveiled in late 2024, the bill drew early backing from both major political parties. It was championed on the campaign trail by high-profile figures including former President Donald Trump and current Vice President Kamala Harris, signaling its broad appeal among voters and policymakers alike.
Senator Cruz described the legislation as “a win for hardworking Americans who have been unfairly taxed on the generosity of others.” He added: “This is about dignity and fairness. Tipped workers, from waitstaff to bellhops, deserve a break.”
Senator Rosen emphasized the bill’s bipartisan foundation: “We all eat out, stay in hotels, and rely on workers who depend on tips. This legislation reflects a shared recognition that they deserve real economic relief.”
How the Act Works
Under the new provisions, individuals who report up to $25,000 in cash tips to their employers would be eligible to deduct that amount from their taxable income—provided their total annual income does not exceed $160,000.
Key stipulations include:
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IRS Oversight: The U.S. Department of Treasury is tasked with identifying “traditionally tipped occupations” within 90 days of the bill’s enactment.
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Reporting Mandates: Eligible workers must accurately report tips to employers to qualify for the deduction.
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Exemption Threshold: Those earning above $160,000 annually are ineligible for the deduction, ensuring the relief is targeted at lower- and middle-income earners.
Economic and Social Implications
While widely praised by service industry advocates, the bill has sparked debate among economists and tax analysts.
According to the Brookings Institute, approximately 37% of tipped workers already pay no federal income tax due to their low earnings. This raises questions about whether the act truly benefits those most in need—or primarily aids higher earners within the service sector who are already at a financial advantage.
“The idea sounds noble, but we must be cautious,” said Lily Chapman, a senior tax policy analyst at Brookings. “It could unintentionally widen the gap between low-earning and mid-tier earners in tipped professions.”
Industry Reactions
The service industry has responded with enthusiasm, seeing the bill as a long-overdue measure to acknowledge the unique financial realities faced by tipped employees.
Nancy Howell, a waitress in Nashville, Tennessee, expressed hope: “This could mean keeping more of what I earn—finally being able to afford car repairs or take a vacation without worrying about Uncle Sam.”
Restaurateurs also view the change as a potential morale booster. “This move can incentivize honesty in tip reporting and reduce under-the-table practices,” said Mike Garcia, owner of a Dallas bistro. “It’s a win for transparency.”
What Happens Next?
The House of Representatives will now review the bill, where it is expected to face rigorous debate. House Speaker Hakeem Jeffries signaled tentative support but emphasized the need for a thorough review of its fiscal impact.
If passed into law, the “No Tax on Tips Act” could redefine wage structures in America’s vast service economy. With nearly 6 million Americans relying on tips for a substantial portion of their income, the ripple effects could be significant—impacting everything from payroll software systems to employee-employer reporting relationships.
Broader Tax Policy Conversations
The bill also contributes to a growing national discourse on modernizing the U.S. tax code. Amidst broader conversations about fair wages, universal basic income, and worker protections, this legislation introduces a new dimension: leveraging the tax code to uplift low- and mid-income workers in sectors that often fall through the policy cracks.
“It’s a creative approach to addressing income inequality,” said Professor Laura Nunez of the Georgetown Public Policy Institute. “But it also underscores the need for a comprehensive reevaluation of how we support service industry labor through both tax and wage policy.”
Looking Ahead
The bill’s trajectory will be closely watched over the coming months, especially as the 2026 midterm elections approach. Lawmakers from both parties are expected to tout their support for the bill as evidence of cross-party effectiveness.
In the meantime, workers and businesses alike await the potential relief that could arrive just in time for the 2026 tax season—if the bill clears the final hurdle in the House.