The bipartisan passing of Senate Bill 129 is being celebrated as a win, offering significant tax relief for service industry workers, but when does the No Tax on Tips bill go into effect? The unanimous vote on the Tips bill has seen it through to the House of Representatives, but there is no telling when it will be approved. The Tips Tax law changes could help struggling workers save more on the tips they earn without having to give it away in taxes, but there are a few hurdles to face before it formally becomes the law.
Those who benefit from the No Tax on Tips bill could see tax deductions of up to $25,000, which is no small number. This is why it’s important to know who is eligible for the tax breaks and understand when Senate Bill 129 could go into effect.
Knowing when the No Tax on Tips bill goes into effect will give you a good idea of how you tax filings will go in 2026. (Image: Pexels)
No Tax on Tips—When Will It Start?
The start date of the No Tax on Tips act hinges on its passing through the house and the approval from the President, who has to sign it into law. If Senate Bill 129 is approved in 2025, the tax deduction will apply to taxable years beginning after December 31, 2024. This means that the exemption will cover tips earned starting January 1, 2025, and workers will be able to claim the deduction when filing their 2025 tax returns in early 2026.
When the No Tax on Tips bill goes into effect will also depend on a few different factors.
House Approval
The bill must pass the House of Representatives, where it could face some complications. House Republicans have a version of the No Tax on Tips included in the broader spending package, the “One, Big, Beautiful Bill.” This bill also has provisions for eliminating taxes on overtime and other provisions in relation to the governance of the country.
There is considerable opposition to this bill package and concerns around the fiscal impact of enforcing it across the US. The House bill also differs slightly in terms of requiring a Social Security number for claimants and setting an end date in 2028 for this policy. Because of the inclusion of a similar act in the larger bill, we might have to wait longer for the overall bill to pass if Senate Bill 129 is not passed by the House.
Legislative Processes Complicate Matters
There is no official deadline by which the No Tax on Tips Act has to go into effect. While there is an approximate goal to approve the packaged bill by Memorial Day on July 4, 2025, the resistance to the package may cause delays. The unanimous vote for the Tips bill shows there is enough support for it to be passed as a standalone bill instead of holding it up with the rest of the proposal, but it is unclear if this option will be pursued.
A Presidential Signature is Required to Pass the No Tax on Tips Act
When will the No Tax on Tips bill go into effect? When the President approves it of course. The bill was a key campaign promise made by the President during the presidential campaign so it is unlikely to face any resistance at the top level. Either individually or a package, it is expected that no tax on tips will start in 2025. The bill could take effect immediately on signing so workers will have to start tracking and reporting their tips more diligently to stay on track for their tax filings in 2025.
Treasury Implementation Could Hold Things Up
If Senate Bill 129 is approved in 2025, the Treasury Secretary will have 90 days to publish a list of who benefits from the No Tax on Tips bill. This list will include occupations that traditionally receive tips as of December 31, 2023, to clarify the eligibility criteria. This could also delay implementation slightly if the list is not finalized.
Who Benefits From No Tax on Tips?
When the No Tax on Tips bill goes into effect, not all workers who receive tips can claim the tax deduction. The final list of eligible occupations will be provided by the Treasury Secretary if approved, but the list is likely to include restaurant and hospitality workers, beauty service professionals, rideshare drivers, and other tipped roles.
An eligibility criteria that has been laid out:
- The tips should be received as cash by employees who work in occupation where tips are traditionally provided
- The tips should be reported to the employer for payroll tax withholding purposes. According to existing law, tips more than $20 per month should be reported to employers
Employees who receive annual pay that exceeds $160,000 will not be allowed to claim the tax deduction. This threshold amount will be periodically adjusted for inflation. Those who are eligible for the benefits provided by the No Tax on Tips bill can deduct up to $25,000 of the tips from the taxable income.
What’s Next for the Tip Tax Law Changes?
It’s almost guaranteed that the Senate Bill will eventually go into effect but exactly when the No Tax on Tips bill will start functioning is hard to tell. Depending on the House action and the “One, Big, Beautiful Bill,” there may be delays in approval. If the House approves the bill by mid-2025, workers could start benefiting from the deduction for tips earned in 2025, reflected in their 2026 tax filings.
The policy doesn’t change any reporting or filing requirements as of now, but could eventually result in a change to the W-4 form to account for the deductions. Workers and employers need to stay informed about the bill to ensure they are prepared for when the time comes. Until then, it’s important to keep track of cash tips and ensure that monthly tips about $20 are reported to employers.
We’ll keep this space updated on when the No Tax on Tips Bill will go into effect, so come back for more updates. Subscribe to The HR Digest for more updates on the changes taking place in the landscape of work and employment.