This bill creates a new tax deduction of up to 25,000 dollars for tips received by employees in tipped occupations. Cash tips reported to employers for payroll purposes qualify for the deduction. Workers earning over 160,000 dollars cannot claim it. The bill also expands the employer tax credit for tips to include beauty services like barbering, nail care, and spa treatments.
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AI Summary
Plain-English explanation of this bill
This bill creates a new tax deduction of up to 25,000 dollars for tips received by employees in tipped occupations. Cash tips reported to employers for payroll purposes qualify for the deduction. Workers earning over 160,000 dollars cannot claim it. The bill also expands the employer tax credit for tips to include beauty services like barbering, nail care, and spa treatments.
Last updated: 1/4/2026
Official Summary
Congressional Research Service summary
<p><strong>No Tax on Tips Act</strong></p><p>This bill establishes a new tax deduction of up to $25,000 for tips, subject to limitations. The bill also expands the business tax credit for the portion of payroll taxes an employer pays on certain tips to include payroll taxes paid on tips received in connection with certain beauty services.</p><p>Under the bill, the new tax deduction for tips is limited to cash tips (1) received by an employee during the course of employment in an occupation that customarily receives tips, and (2) reported by the employee to the employer for purposes of withholding payroll taxes. (Under current law, an employee is required to report tips exceeding $20 per month to their employer.)</p><p>Further, an employee with compensation exceeding a specified threshold ($160,000 in 2025 and adjusted annually for inflation) in the prior tax year may not claim the new tax deduction for tips.</p><p>Finally, the bill expands the business tax credit for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments. (Under current law, an employer is allowed a business tax credit for the amount of payroll taxes paid on certain tips received by an employee in connection with providing, delivering, or serving food or beverages.) </p>
Key Points
Main provisions of the bill
Creates 25,000 dollar tax deduction for reported tips
Limited to employees in customary tipping occupations
Income cap of 160,000 dollars (inflation adjusted)
Expands employer tip credit to beauty service industries
Applies only to tips reported for payroll tax purposes
How This Impacts Americans
Potential effects on citizens and communities
This legislation delivers significant tax relief to workers in tipped industries like restaurants, hospitality, and personal services. The 25,000 dollar deduction would make most tips effectively tax-free for eligible workers. The income cap ensures benefits target middle and lower-income workers. Employers also benefit from expanded credits for beauty service tips.
Policy Areas
Primary Policy Area
Taxation
Related Subjects
Accounting and auditing
Food industry and services
Income tax deductions
Service industries
Tax administration and collection, taxpayers
Scope & Jurisdiction
Jurisdiction Level
federal
Congressional Session
119th Congress
Citation Reference
129, 119th Congress (2025). "No Tax on Tips Act". Source: Voter's Right Platform. https://votersright.org/bills/118-s-129
