# Plain Language Summary: No Tax on Tips Act

This bill would allow workers who receive cash tips to deduct those tips from their taxable income, meaning they wouldn't have to pay federal income tax on the tips they earn. Right now, tips are considered income and are subject to federal income tax just like wages. Under this bill, if you're a server, bartender, taxi driver, or anyone else who receives cash tips, you could subtract the full amount of those tips from your income before calculating how much tax you owe. For example, if you earned $30,000 in wages and received $5,000 in cash tips, you'd only pay taxes on $25,000 instead of $35,000.

The bill is designed to work for everyone, whether they take the standard deduction (which most people do) or itemize their deductions. This is important because normally, deductions only help you if you itemize, but this bill specifically allows the tip deduction to apply to people taking the standard deduction too. The bill also protects the deduction from being reduced by other tax limitations that normally apply to itemized deductions. Additionally, employers would need to adjust how much they withhold from paychecks to account for this new deduction, so workers wouldn't overpay taxes throughout the year.

The main benefit is straightforward: workers in service industries and other tip-based jobs would keep more of their earnings. However, it's worth noting that this reduces tax revenue for the federal government, and the deduction only applies to cash tips that workers report to their employers—not unreported tips. The changes would take effect for tax years beginning after December 31, 2024.

No Tax on Tips Act

Donalds, Byron

No Tax on Tips ActThis bill allows a deduction from gross income (above-the-line tax deduction) for cash tips received by a taxpayer.&nbsp;