This bill gives workers in tipping jobs a tax break by allowing them to deduct up to $25,000 in tips they receive each year. The catch is that the tips have to be cash tips that you actually reported to your employer (which you're already required to do if you make more than $20 a month in tips). If you earned more than $160,000 last year, you can't use this deduction—it's designed for lower and middle-income workers.

The bill also helps employers in certain service industries. Currently, employers get a tax credit for payroll taxes they pay on tips for food and beverage workers. This bill expands that credit to include beauty and personal care workers like hairstylists, nail technicians, estheticians, and spa workers. Essentially, employers in these industries will get some tax relief on the payroll taxes they contribute based on their employees' tips.

The main effect is putting more money back in the pockets of service workers who rely on tips—whether they work in restaurants, bars, salons, or spas—by reducing their tax burden on those tips. For employers, it means a modest tax benefit for having tipped employees across a wider range of service businesses.

No Tax on Tips Act

Cruz, Ted

No Tax on Tips ActThis bill establishes a new tax deduction of up to $25,000 for tips, subject to limitations. The bill also expands the business tax credit for the portion of payroll taxes an employer pays on certain tips to include payroll taxes paid on tips received in connection with certain beauty services.Under the bill, the new tax deduction for tips is limited to cash tips (1) received by an employee during the course of employment in an occupation that customarily receives tips, and (2) reported by the employee to the employer for purposes of withholding payroll taxes. (Under current law, an employee is required to report tips exceeding $20 per month to their employer.)Further, an employee with compensation exceeding a specified threshold ($160,000&nbsp;in 2025 and adjusted annually for inflation) in the prior tax year may not claim the new tax deduction for tips.Finally, the bill expands the business tax credit for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments. (Under current law, an employer is allowed a business tax credit for the amount of payroll taxes paid on certain tips received by an employee in connection with providing, delivering, or serving food or beverages.)&nbsp;&nbsp;