The Senate has unanimously approved the No Tax on Tips Act, a significant step towards eliminating federal income tax on cash tips. Introduced by Sen. Ted Cruz (R-Texas) in January, the bill allows eligible employees to deduct up to $25,000 in cash tips from their federal income tax, marking a notable moment for bipartisanship in Congress.
Sen. Jacky Rosen (D-Nevada), a co-sponsor of the bill, highlighted the importance of this legislation for workers who rely on tips as a major part of their income. The measure specifically affects employees in occupations that traditionally receive tips, such as waiters, bartenders, and delivery drivers, providing them with substantial tax relief.
If enacted, tips given in cash, credit, debit, or check could be fully deductible for workers earning less than $160,000 a year. This income threshold will be adjusted for inflation annually. Importantly, it aims to alleviate some financial burdens on working Americans. Senate Minority Leader Chuck Schumer (D-New York) emphasized that this relief targets “working Americans” rather than the wealthy, suggesting the bill addresses income inequality.
While the potential benefits of the Act are clear, experts warn that it may not significantly aid low-income workers since many already have minimal federal tax liability. A report from the Committee for a Responsible Federal Budget estimates the legislation could cost the government between $10 billion and $15 billion annually. Additionally, there are concerns that the bill might inadvertently affect workers’ tax credits and Social Security benefits.
The No Tax on Tips Act will now move to the House for consideration, where it could encounter challenges, especially since a version of it is packaged within a broader GOP tax and immigration bill. Rosen has expressed that separating the bill from the contentious larger package could increase its chances of passing.
Sen. Cruz remains optimistic, asserting that regardless of the path it takes through Congress, the legislation will ultimately provide meaningful support to American workers. The discussion around this proposal underscores the growing momentum to reform tax policies that impact service workers, aiming to enhance their financial stability.