The No Tax on Tips Act was passed in the Senate on Tuesday after being co-sponsored by Sen. Ted Cruz (R-TX), chairman of the Senate Commerce Committee, and Sen. Jacky Rosen (D-NV).
The bipartisan bill was passed when Rosen brought the bill up for unanimous consent, or automatic approval as long as no member objected.
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What is the plan, and where did it come from?
The promise was first pitched by Trump at a Nevada campaign stop in June 2024 and quickly gained bipartisan support. Nevada has one of the highest populations of service workers in the United States. According to the Tax Policy Center, 5% of Nevadans are tipped workers.
The proposed legislation would add to the Internal Revenue Code of 1986 that certain tipped workers can receive a deduction on future tips and a credit for previously taxed cash tips.
Only workers in an “occupation traditionally receiving tips” would receive the break. Those jobs were partially defined in a statement by Senate Minority Leader Chuck Schumer (D-NY) as “servers, bartenders, [and] delivery drivers.” Another occupation mentioned in the legislation is people in the beauty service industry.
How much could workers save?
If passed, each worker would be able to receive a tax deduction on tips in 2026 and a credit for previously taxed tips dating as far back as Dec. 31, 2023, up to $25,000. According to the National Employment Law Project, the U.S.’s monthly median tipped wage is $867, equating to about $10,400 in tips per year. The taxes on those tips since the end of 2023 would be credited.
Employees who earn over $160,000 per year would not qualify for the tax deduction.
Three percent of families are estimated to benefit from the tax break, which would cost approximately $100 billion, according to a Yale Budget Lab report from September 2024.
Who supports ‘no tax on tips’?
Another sponsor of the act was Sen. Catherine Cortez Masto (D-NV), and former Vice President Kamala Harris expressed similar sentiments during her debate against Trump during the 2024 campaign.
Former libertarian Texas Rep. Ron Paul floated the idea during his 2012 presidential campaign, but saw significant pushback from economists.
What comes next?
SENATE PASSES TRUMP’S ‘NO TAX ON TIPS’ PROPOSAL IN SURPRISE MOVE BY DEMOCRAT
The bill will now move to the House, where representatives will go through the same process of research and discussion. If the tax cut passes in the House, the bill will be sent to the president, who has remained committed to the proposal thus far.
There is also a version of the act in the GOP’s “big, beautiful bill,” which is making its way through the House Rules Committee. If the act is still included in the reconciliation bill when it passes, it could be cut once the bill goes to markup in the Senate before the final version heads to the president’s desk.