Who Benefits From the No Tax on Tips Act?

This week, the Senate passed the No Tax on Tips Act unanimously, which could lead to significant ramifications for the restaurant industry in the United States. Here's what you need to know about the bill and its potential impact on you.

What is the No Tax on Tips Act? 

The No Tax on Tips Act, also known as Bill S. 129, aims to “amend the Internal Revenue Code of 1986 to eliminate the application of the income tax on qualified tips through a deduction allowed to all individual taxpayers, and for other purposes.” The bill permits “qualified” employees to deduct up to $25,000 per tax year. 

How will this affect food service workers? 

There are some key points to understand about that “qualified” language. As the bill states, the term means “any cash tip received by an individual in the course of such individual’s employment in an occupation which traditionally and customarily receives tips on or before December 31, 2023.”

That can include “servers to bartenders, delivery drivers, and everything in between,” according to a statement by Senate Democratic Leader Chuck Schumer (D-NY). You can only claim this deduction if you earn less than $160,000 in 2025, the Associated Press explained.

According to The Budget Lab at Yale, an estimated 4 million people worked in “tipped occupations” in 2023, accounting for 2.5% of all employment in the U.S. The lab also noted that this will likely impact the Gen Z generation and younger the most since the average age of tipped workers in the U.S. is just 31. “A third of tipped workers are below 25, with 13% being teenagers,” the lab noted. 

Tipped workers and their employers would still be responsible for other taxes, including payroll taxes, as well as state and local taxes, the Associated Press noted.

Who was in support of the bill? 

The National Restaurant Association is arguably the most crucial organization backing the bill. In January, Sean Kennedy, executive vice president of public affairs for the association, shared in a statement, “Eliminating taxes on tips would put cash back in the pocket of a significant number of workers in the restaurant and foodservice industry and could help restaurant operators recruit industry workforce. The No Tax on Tips Act of 2025 is sensible legislation that includes refinements and protections to make it fiscally responsible while still supporting our employees.” 

Schumer is also in support of the act, noting in his statement, “Thanks to Senator Rosen’s incredible leadership, we are one step closer to eliminating taxes on tipped wages for hardworking Americans. Working Americans — from servers, to bartenders, delivery drivers, and everything in between — work hard for every dollar they earn and are the ones who deserve tax relief, not the ultra-rich. While President Trump and Republicans push tax breaks for billionaires and stick the middle class with the bill, Senate Democrats are standing strong to protect America’s working families.”

And naturally, it had the support of Sen. Ted Cruz (R-Texas), who introduced the bill in January.

“President Trump made a promise to the American people that he would eliminate taxes on tips. In Congress, I formed a bipartisan, bicameral coalition to get that done, and in the Senate introduced the No Tax on Tips Act,” Cruz shared in a statement. “Today, I went with Senator Rosen to the floor to secure Senate passage of the bill. This 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. 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.”

Will this actually make a difference to the U.S. economy?

As the Budget Lab explained, a significant percentage of tipped workers already fall into a category where they pay little to no federal taxes. “More than a third—37%—of tipped workers had incomes low enough that they faced no federal income tax in 2022, even before accounting for tax credits,” it stated. “This suggests that the direct effect of the bill on the workforce as it stands today — before accounting for behavioral changes — would be small. The larger and far more uncertain effect would stem from behavioral changes incentivized by the bill, such as substitution into tipped employment and tipped income, which would increase the bill’s overall cost.”

And while it may not make a huge dent in the tax burden of tipped workers, it could have substantial effects on the overall U.S. economy. The Associated Press noted that Congressional budget analysts project it could increase the deficit by $40 billion through 2028, when the provision would expire. However, the Associated Press also cited the Committee for a Responsible Federal Budget, which says the bill could cost the U.S. $120 billion over 10 years if made permanent. 

What happens now? 

The No Tax on Tips Act is currently moving to the House for approval. If it receives approval, it will then go to President Trump to be signed into law.

However, as The Washington Post also explained, one version of the No Tax on Tips Act is currently entangled in Trump's larger tax and immigration bill (known as the “One Big Beautiful Bill Act”) and could end up getting axed with this larger act, as many insiders are calling it “doomed.” Alternatively, The Post explained, House Republicans could separate the No Tax on Tips Act and call for a standalone vote, which does have support. 

As Sen. Jacky Rosen (D-Nevada) shared in a statement, “House Republicans have included a version of the No Tax on Tips Act in their bigger budget bill, a bill that cuts Medicaid, SNAP, and other programs families rely on to give more tax breaks for billionaires and the ultra-wealthy. We shouldn’t be forcing working families to choose between keeping their health care or keeping their tips, which is why we want this bipartisan bill on its own — on its own — not part of a harmful, extreme budget bill.”