On May 21, 2025, the U.S. Senate unanimously passed the No Tax on Tips Act, a landmark piece of legislation allowing workers in tipped industries to deduct up to $25,000 in tips from their taxable income.
This bipartisan win marks a major shift in how service workers will be taxed — and how businesses in industries like hospitality, beauty, and personal care will manage compliance and payroll.
Here’s what tax professionals, employers, and employees need to know.
The No Tax on Tips Act is designed to provide relief to low- and middle-income service workers who rely on tips — such as:
Under this legislation, up to $25,000 in tips per year will be exempt from federal income tax, provided the worker accurately reports those tips to their employer for tax withholding.
This bill directly addresses a long-standing concern in the tax world: the inconsistent treatment of tip income. Workers who depend on variable tips often face tax burdens that don’t reflect the volatility of their income streams.
This deduction:
Employers in tipped industries — especially salons, spas, and restaurants — should prepare to:
If the House passes the legislation and the President signs it into law, these changes could take effect starting with the 2026 tax year.
The bill was co-sponsored by:
The bipartisan nature of the vote (100–0) signals strong political momentum heading into House discussions.
If signed into law, the No Tax on Tips Act would represent one of the most worker-focused tax changes in years — with meaningful savings for millions of service workers.
Tax professionals should begin modeling scenarios for clients in hospitality, retail, and beauty to project potential savings and compliance adjustments.
Bizora AI will continue tracking the bill’s progress in the House and provide actionable updates for firms supporting tipped workers and service-based employers.