No Tax on Tips Act

The No Tax on Tips Act would create a new federal income tax deduction for employees who receive tips. If enacted, workers in occupations that customarily receive tips could deduct up to $25,000 in cash tips they received and reported to their employer during the tax year. However, this deduction would not be available to employees whose prior year compensation exceeded $160,000 (adjusted annually for inflation).

The bill would also expand an existing business tax credit for employers. Currently, employers receive a tax credit for payroll taxes they pay on tips related to food and beverage service. If enacted, this credit would be expanded to include payroll taxes paid on tips received in connection with beauty services, including barbering, hair care, nail care, esthetics, and spa treatments.

The bill is currently in the House and has been referred to committee for consideration. It has not yet been voted on by the full chamber.