President Donald Trump’s mission to end taxes on tips is one step closer to reality.
The provision is part of the large One Big Beautiful Bill Act, which narrowly passed the House of Representatives on May 21. The legislation is now in the hands of the Senate, which hopes to pass the bill and move it to Trump’s desk for final approval by July 4.
Under the bill, qualifying workers could deduct 100 percent of their reported cash tips from their taxable income, even if they take the standard deduction. The goal is to allow more hourly workers in the service sector to keep what they earn without increasing employer costs.
This rule would be for employees who earned less than $160,000 in 2025. The Trump administration said it would publish a list of qualifying occupations within 90 days of the bill’s signing.
To qualify, tips must be voluntary—not service charges or auto-gratuities—earned in occupations where tipping was customary before 2025, and reported either by the employer or directly by the employee using existing IRS forms. Payroll taxes (Social Security and Medicare) still apply to tipped income, as do local and state taxes.
The National Restaurant Association described the bill as a win for the industry.
“The inclusion of the No Tax on Tips and No Tax on Overtime provisions recognizes the value of our dedicated workforce,” Michelle Korsmo, CEO of the Association, said in a statement. “More than two million tipped servers and bartenders stand to benefit, while the overtime measure rewards the commitment of over 13 million hourly team members across the sector.”
However, the proposal would come with a big cost. The Congressional Budget Office projected the “no tax on tips” rule would increase the deficit by $40 billion through 2028. The Committee for a Responsible Federal Budget, a nonprofit watchdog group, projected the cost would be $120 billion over a decade if the tip exemption is made permanent.
There is also concern about how the provision would help low-income workers. The AP reported that about one-third of tipped workers don’t make enough to owe income taxes, meaning this proposal would most likely benefit higher-income employees.
“It’s overlooking non-tipped workers who need the help just as badly, and it’s giving the benefit predominantly to the least needy of the tipped workers,” Michael Lynn, a professor at Cornell University whose research focuses on tipping, told the Associated Press.
Only 2 percent of all households, or 60 percent of households with tipped workers, would receive a tax cut, according to the Urban-Brookings Tax Policy Center. Among that 60 percent, the average tax cut would be about $1,800 a year or $35 a week.
