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The U.S. Senate passed the No Tax on Tips Act unanimously on Tuesday (May 20), moving it to the House of Representatives for further consideration. The bill, introduced by Republican Senator Ted Cruz of Texas, proposes a tax deduction of up to $25,000 for tips, exempting them from federal income tax. This idea was initially floated by President Donald Trump during his campaign and has received bipartisan support.
Democratic Senator Jacky Rosen of Nevada called for the bill's immediate passage, which faced no objections from GOP members. The legislation aims to amend the Internal Revenue Code to exempt cash tips, including those given via credit and debit cards and checks, from federal income tax. Eligible employees, such as waiters, bartenders, and delivery drivers, would be able to claim a 100 percent deduction for tips up to $25,000 per tax year. However, only those earning less than $160,000 in the 2024-2025 tax year would qualify, with this threshold adjusted annually for inflation.
The bill also expands the business tax credit for payroll taxes on tips to include professions like barbering, nail care, and spa treatments. Senate Minority Leader Charles E. Schumer emphasized that the bill provides tax relief for "working Americans" who rely on tips. Senator Cruz stated that the bill would significantly impact blue-collar workers by protecting their earnings.
The No Tax on Tips Act is expected to be part of the House GOP's megabill, indicating its potential significance in upcoming legislative discussions. The House will now deliberate on the bill's provisions and its potential impact on the economy and workers.