No Tax on Tips Act

This bill would establish a federal tax deduction of up to $25,000 for cash tips received by employees in occupations where tipping is customary, provided the tips are reported to the employer. This deduction would be unavailable to individuals whose compensation exceeded $160,000 in the previous tax year. Additionally, the bill proposes to expand an existing business tax credit to cover payroll taxes paid by employers on tips received for beauty services, such as hair care, nail care, and spa treatments.

This bill affects employees in occupations that customarily receive tips, provided their prior year compensation did not exceed $160,000 (adjusted for inflation) and they report their cash tips to their employers. It also impacts business owners who provide beauty services—including barbering, hair care, nail care, esthetics, and body or spa treatments—by making them eligible for a payroll tax credit on employee tips. Additionally, the bill affects the Internal Revenue Service and employers responsible for withholding payroll taxes on reported tip income.

• Establishment of a tax deduction for tips. The bill creates a new tax deduction of up to $25,000 for cash tips received by employees in occupations where tipping is customary. To qualify, these tips must be reported to the employer for payroll tax withholding purposes.
• Income eligibility limits for the tip deduction. The deduction is unavailable to employees whose compensation exceeded a specific threshold in the previous tax year. For 2025, this threshold is set at $160,000 and will be adjusted annually for inflation.
• Expansion of the employer business tax credit. The bill expands the existing business tax credit for employer-paid payroll taxes on tips to include those received for beauty services. This includes services related to barbering, hair care, nail care, esthetics, and body or spa treatments.

The bill modifies existing federal tax law by establishing a new deduction for cash tips reported under current payroll tax withholding requirements. It also expands the existing business tax credit for employer-paid payroll taxes on tips, which is currently limited to the food and beverage industry, to include various beauty and spa services.

The bill aims to reduce the tax burden on service workers by establishing a tax deduction of up to $25,000 for reported cash tips and expanding the employer business tax credit for payroll taxes paid on tips to include beauty and spa services.