In a surprising act of bipartisan unity, the US Senate unanimously passed the No Tax of Tips Bill on May 20, 2025. Similar to the No Tax on Overtime Act, the legislation seeks to limit the taxes levied on the income earned by an individual, but instead of overtime hours, the focus here is on the tips earned during a shift. The Senate Bill 129 (S.129) was first discussed during the presidential campaign and formally introduced in January 2025 by Senator. Ted Cruz.
Since then, it has garnered support from a bipartisan group of senators, which came as a real surprise when the proposal was presented this week. The unanimous vote on the Tips bill did not see any objections or contradictions, which is a positive indication that it could be passed at the House just as quickly.
The No Tax on Tips Act is moving forward with fewer hurdles than expected. (Image: Pexels)
No Tax on Tips Update: Senate Passes the Proposed No Tax Act With No Resistance
The No Tax on Tips update could mark a big win for workers who rely on their tips to see them through the month, as the lack of tax deductions could greatly assist in their savings towards a more comfortable future.
So what is the No Tax on Tips Act? The Senate Bill 129 will allow workers who earn tips—such as servers, bartenders, and delivery drivers—to deduct up to $25,000 of their tipped income from federal taxes, provided their annual income does not exceed $160,000 in the prior year. This threshold can be adjusted for inflation in the future to ensure it keeps up with the changing times.
Eligibility and Limitations Under the No Tax on Tips Legislation
The Tips Tax exemptions proposed in 2025 come with some eligibility criteria to determine who it applies to. Apart from the $160,000 income level mentioned earlier, the bill also clarifies that it applies only to cash tips received by employees in occupations that customarily receive tips.
These tips have to be reported by the employees to their employers for payroll tax withholding purposes. This is as per the current requirement of reporting tips exceeding $20 per month. A future No Tax on Tips update could see more restrictions added to the list, but it appears unlikely for now.
What’s Next for the No Taxes on Tips Act?
The Senate passed the No Taxes on Tip Act without reservation, which means that with no resistance to hold it up, it will now go to the House of Representatives where further action will be necessary. The House has been considering the inclusion of the No Taxes on Tips legislation in the broader spending package, the One Big, Beautiful Bill, which includes a collection of different legislations and tax cut proposals.
This larger package of proposals is expected to face greater resistance, which could make it more complicated to pass. The House leaders could choose to pass the No Taxes on Tip Act as a standalone bill, leveraging the bipartisan support it received. One way or another, it is expected that we will hear more about the Tips Tax exemption in 2025.
Impact of Senate Bill 129 on Workers
There is no doubt that this No Taxes on Tips update is good news for hardworking Americans who are hoping for some relief amidst the economic uncertainties present today. The unanimous vote on the Tips bill is surprising but not unwelcome, as citizens are reassured at the sight of the two parties agreeing on the advantages the bill presents.
This relief is particularly meaningful for low- and middle-income service workers, who often face financial pressures from rising living costs. However, tax experts have raised concerns about potential downsides including the fact that the tax exemptions would only provide a limited income boost to workers. A federal minimum wage hike or other measures could offer more comprehensive benefits, but with the passing of this bill, other potential solutions could be pushed aside more easily.
There are also concerns regarding how the tax break could affect the funds available for other benefits. By reducing taxable income, the bill could lower contributions to Social Security and Medicare, potentially affecting workers’ future benefits. Tracking and reporting on tipped income could also prove to be more challenging and there may be an unintended response from employers who limit the wages offered to workers to encourage them to seek out and rely on tips instead. Despite these concerns, there is a general sense of agreement that the Senate’s response to the No Taxes on Tips legislation is the right one.
Looking Ahead to More No Tax on Tips Updates
The unanimous vote on the No Tax on Tips bill marks a significant step forward to fulfilling a campaign promise and making the lives of hardworking citizens a tad bit easier, but there are still some challenges to navigate before the bill goes into effect. The broader tax legislations need to be evaluated and their full impact assessed before the final implementation of the bill. Amendments could be made at the House level before the legislation is brought into effect.
As the bill progresses, stakeholders in the service industry and policymakers will closely monitor its impact on workers’ finances and the broader economy. HR professionals and employers will need to keep up with these incoming changes to prepare their own systems for the implementation of the legislation.
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