U.S. Senate passed the “No Tax on Tips Act” with a 100-0 vote is supported by multiple sources. On May 20, 2025, the Senate unanimously passed the bipartisan bill, introduced by Sen. Ted Cruz (R-Texas) and co-sponsored by Sens. Jacky Rosen and Catherine Cortez Masto (D-Nevada), among others. The legislation allows a tax deduction of up to $25,000 for reported cash tips (including cash, credit/debit card, and checks) for workers earning $160,000 or less in 2025, with the income threshold adjusting for inflation in future years.
The bill aims to exempt tips from federal income tax, fulfilling a campaign promise by President Donald Trump. It now heads to the House for consideration, where it may be included in a broader tax package or passed as a standalone bill. However, critics, including the Tax Foundation and the Center for American Progress, warn it could increase the federal deficit by $100-250 billion over a decade and may primarily benefit higher-earning tipped workers while opening avenues for tax avoidance by wealthier individuals.
Implications of the “No Tax on Tips Act”
The unanimous Senate passage of the “No Tax on Tips Act” on May 20, 2025, carries significant implications for workers, the economy, and tax policy. The act allows a tax deduction of up to $25,000 on reported tips for workers earning $160,000 or less annually, effectively exempting tips from federal income tax. This could increase disposable income for millions of tipped workers, such as servers, bartenders, and delivery drivers, particularly in industries like hospitality where tips are a significant portion of earnings.
The income threshold adjusts for inflation, ensuring the benefit remains relevant in future years. Supporters argue it will boost the financial security of low- and middle-income service workers, potentially stimulating local economies as these workers spend more. The National Restaurant Association and similar groups have endorsed the bill, citing relief for employees in high-cost-of-living areas.
Critics, like the Tax Foundation, estimate a $100-250 billion increase in the federal deficit over 10 years due to lost tax revenue. This could strain federal budgets, especially if not offset by other revenue measures. The act may incentivize better tip reporting, as the deduction applies only to reported tips, potentially reducing under-the-table payments and increasing transparency in the service industry.
However, the Center for American Progress and others warn of potential tax avoidance, where high-income individuals or businesses might reclassify income as “tips” to exploit the deduction, undermining the tax code’s integrity. The $25,000 cap and income limit aim to target relief to lower earners, but critics argue higher-earning tipped workers (e.g., in upscale establishments) may benefit disproportionately.
The 100-0 Senate vote signals strong bipartisan support, reflecting the bill’s populist appeal and alignment with President Trump’s campaign promise. Its passage in the House, either standalone or within a larger tax package, seems likely given the political climate, though debates over funding offsets could arise. The bill’s success could set a precedent for further tax relief measures, potentially shaping the trajectory of Trump’s tax policy agenda in his second term.
Despite the unanimous Senate vote, the act has sparked divisions among stakeholders: Service workers and organizations like the National Restaurant Association support the bill, viewing it as a lifeline for low-wage earners who rely on tips to offset stagnant wages in inflationary times. The bipartisan sponsorship (e.g., Cruz, Rosen, Cortez Masto) and unanimous vote reflect broad political appeal, especially in states like Nevada with large hospitality sectors. Republicans frame it as a tax cut victory, while Democrats highlight support for working-class families.
Groups like the Tax Foundation and the Center for American Progress argue the bill is poorly targeted, potentially benefiting higher earners more than low-wage workers. They also highlight the deficit increase and risks of tax loopholes. Labor Advocates argue the bill distracts from addressing deeper issues, like raising the federal minimum wage for tipped workers (stagnant at $2.13/hour for tipped employees in many states). They see it as a temporary fix that doesn’t address structural inequalities in the gig and service economies.
Concerns exist about enforcement challenges, as the IRS may struggle to verify legitimate tips versus reclassified income, potentially leading to fraud or administrative burdens. While the Senate vote suggests unity, X posts reveal polarized views. Some users praise the bill as a win for workers, while others call it a “gimmick” that fails to address broader tax fairness or wage stagnation. This reflects a broader divide between those prioritizing immediate worker relief and those advocating for systemic reforms.
In the House, debates may intensify over funding the tax cut or integrating it into a larger tax package, potentially exposing partisan fault lines despite the Senate’s consensus. The “No Tax on Tips Act” offers tangible benefits for tipped workers but raises concerns about fiscal impact and tax equity.
While the Senate’s 100-0 vote reflects rare bipartisan agreement, the divide among analysts, advocates, and the public highlights competing priorities: immediate relief versus long-term fiscal and labor policy reform. The bill’s fate in the House and its implementation will likely shape these debates further, with potential ripple effects on tax policy and worker protections.
