The proposal establishes a new tax deduction of up to $25,000 for cash tips.
Lawmakers in the Republican-led Senate on Tuesday passed a proposal to eliminate federal taxes on tips, moving a step closer to fulfilling a campaign promise by President Donald Trump that has drawn support from both sides of the political spectrum.
The measure establishes a new tax deduction of up to $25,000 for tips—whether received in cash, by credit or debit card, or by check—that are earned by employees in occupations that customarily receive tips and are reported to their employers for purposes of withholding payroll taxes.
Senators passed the bipartisan “No Tax on Tips Act” in a unanimous vote, sending the legislation to the House of Representatives.
The measure was introduced by Sen. Ted Cruz (R-Texas) and sponsored by a bipartisan group of senators including two of Nevada’s Democratic senators, Jacky Rosen and Catherine Cortez Masto.
In a statement following the vote, Cruz said the bill will “have a lasting impact on millions of Americans by protecting the hard-earned dollars of blue-collar workers, the very people who are living paycheck-to-paycheck.”
The Texas lawmaker urged his colleagues in the House to pass the legislation and send it to Trump’s desk to be signed into law.
Under current law, an employee is required to report tips exceeding $20 per month to their employer.
The bill does not apply to employees making more than $160,000 in 2025, a figure that will be adjusted annually to account for inflation, according to the bill.
Tipped workers in the bottom 60 percent of the income distribution would receive an average tax cut of $1,260 if tips were excluded from income taxes, according to the non-partisan organization, the Peter G. Peterson Foundation.
The organization noted that economists at the Budget Lab at Yale and the Tax Foundation each estimate federal revenues would drop by around $110 billion over 10 years if tips are excluded from individual income taxes.
