• The Senate has approved the 'No Tax on Tips' Act, a move recognized as vital for service workers.
• The bill allows for a new tax deduction on tips up to $25,000 for those in customary tipping occupations.
• House negotiations will determine whether the bill will pass separately or as part of a larger budget proposal.

The Senate has unanimously passed the 'No Tax on Tips Act', which proposes to eliminate federal income taxes on gratuities, a key promise from President Trump aimed at providing relief for service workers. This legislation, backed by bipartisan support, primarily impacts employees in occupations where tipping is a common practice, such as waiters and delivery drivers, allowing them to deduct up to $25,000 in cash tips received annually. The bill must now navigate the House of Representatives to become law, and if successful, will be effective for taxable years beginning after December 31, 2024, according to Newsweek and The Hill.

This bill was introduced by Senator Ted Cruz (R-TX) and advanced with consent from Senate Democrats, including Senator Jacky Rosen (D-NV). It stipulates that only tips that are reported to employers for payroll tax purposes can be deducted, benefiting those whose income is largely derived from tips. Under current federal law, employees must report any tips exceeding $20 a month to their employers, a framework that this legislation seeks to simplify, according to The Hill and NY Times.

The Act proposals received notable support from Trump during his campaign, especially in states with a high percentage of tipped employees, such as Nevada where approximately 25% of the workforce relies on tips for their income. Advocates argue that the bill represents a significant tax break for lower-income service workers, enhancing their financial stability, as outlined by Senators Rosen and Cortez Masto, according to NY Times and Newsweek.

As the bill moves to the House, there is a possibility it could be amalgamated into a larger legislative package known as the “One, Big, Beautiful Bill.” However, there is contention regarding this approach, with Democrats urging the House to pass the bill separately rather than coupling it with a budget that includes cuts to social programs. Rosen criticized this potential strategy, urging for bipartisan support without attaching detrimental provisions for working families, as reported by The Hill and NY Times.