The full Senate passed Tuesday the No Tax on Tips Act, which would exempt workers’ tips from federal income tax. The bill passed by a 100-0 vote.
Sen. Jacky Rosen, D-Nev., along with Sen. Ted Cruz, R-Texas, introduced the bill on Jan. 16. The bill received no objections on the Senate floor. It now heads to the House.
"Nevada has the highest concentration of tipped workers in the nation, and the bipartisan No Tax on Tips Act would allow workers to keep their tips without paying federal income tax on them," Rosen said Tuesday on the Senate floor. "This legislation also includes guardrails to ensure that it benefits Nevadans who need it most, and not CEOs and wealthy individuals."
President Donald Trump "made a promise to the American people that he would eliminate taxes on tips," Cruz said Tuesday in a statement. "In Congress, I formed a bipartisan, bicameral coalition to get that done, and in the Senate introduced the No Tax on Tips Act."
The legislation "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," Cruz said. "I urge my colleagues in the House to pass this important bill and send it to the President’s desk to be signed into law.”
As Cruz explained, the bill exempts “cash tips” — cash, credit and debit card charges, and checks — from federal income tax by allowing taxpayers to claim a 100% deduction at filing for tipped wages. The deduction is allowed for non-itemizers.
The bill's updated text, Cruz said, "includes guardrails to ensure only traditionally tipped employees" will benefit from No Tax on Tips.
For instance, the deduction is limited to employees with annual compensation below $160,000 (adjusted annually for inflation), with a maximum deduction of $25,000 per year allowed to be claimed for eligible tips.
The bill limits the deduction to workers in occupations that "traditionally and customarily received tips on or before December 31, 2023," and calls on the Treasury secretary to make a list of those occupations within 90 days.
'A Messaging Bill'
Jeff Bush of The Washington Update said Wednesday in an email that he didn't "understand the need for the Senate to pass a standalone no tax on tips bill. It’s clearly part of the House’s tax package that is likely coming to the Senate sooner rather than later."
The bill's "actual impact on tipped employees is likely to be minimal," Bush said. "I would guess that many cash tips aren’t reported as income, and a significant number of tipped workers don’t earn enough to pay federal taxes anyway."
The legislation is "primarily a messaging bill that gives senators the opportunity to publicly support the issue," Bush added, saying it also puts Senate Democrats "in a messaging bind when the larger tax bill comes up. GOP candidates will certainly use their votes in, 'I was for it, before I was against it' type ads in the upcoming elections."
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