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The Senate unanimously approved the No Tax on Tips Act on Tuesday (May 20), a bill that proposes eliminating federal income tax on tips. The legislation, which was part of President Donald Trump's campaign promises, will now head to the House of Representatives for a vote.
The bill aims to amend the Internal Revenue Code, exempting cash tips from federal income tax. This includes tips received through cash, credit, debit cards, and checks. Eligible employees can claim a 100 percent deduction for tips up to $25,000 per tax year. According to the legislation, only employees earning less than $160,000 annually would qualify, and they must report their tips to employers for payroll tax purposes.
Senate Minority Leader Chuck Schumer highlighted that the bill would benefit workers like waiters, bartenders, and delivery drivers. "Working Americans who receive tips work hard for every dollar they earn and are the ones who deserve tax relief, not the ultra-rich," Schumer said. Senator Ted Cruz added that the bill "will have a lasting impact on millions of Americans by protecting the hard-earned dollars of blue-collar workers."
However, experts warn that the bill could cost the government $10 billion to $15 billion annually in lost revenue. The Committee for a Responsible Federal Budget noted that the policy might not significantly help working Americans, as tipped workers make up a small portion of the labor force and often have low federal income tax liability.
The bill's future is uncertain as it may become entangled in broader legislative debates. The House version includes additional requirements, such as Social Security numbers for claimants and their spouses, potentially excluding some immigrants. If passed by the House, the bill will be sent to President Trump for signing.