In a rare show of bipartisan support, the Senate recently passed the No Tax on Tips Act, a piece of legislation that—if enacted—could change how millions of Americans report and pay taxes on tip income. While not yet law, the bill’s unanimous approval in the Senate has brought renewed attention to this potential shift in tax policy.
About the Bill: No Tax on Tips
The core idea of the bill is to allow workers who receive tips—such as restaurant servers, hotel staff, and rideshare drivers—to deduct up to $25,000 in qualified tips from their federal taxable income each year. To be eligible, the tips must be reported to an employer (as currently required by the IRS), and the worker’s total income must fall below $160,000 in 2025. This threshold would be indexed for inflation in future years.
The proposed deduction would apply to tax years 2025 through 2028, though further changes may come as the legislation moves through the House.
Who Would Benefit?
Roughly 4 million Americans work in tipped occupations, according to recent estimates. However, not all would benefit equally. Lower-income tipped workers often have little to no federal income tax liability due to the standard deduction. As such, the largest benefits may go to middle-income workers in service industries who report substantial tip income and fall within the earnings threshold.
Considerations for Wealth Management
While this bill primarily affects workers in industries that rely on tipping, it raises broader questions for wealth planning:
- Tax Strategy Adjustments: If the bill passes, individuals with clients in service sectors may need to reassess income reporting and tax planning strategies.
- Fairness & Policy Implications: The bill treats tip income differently from other types of earned income. This could introduce complexity in how compensation structures evolve—especially if similar treatment is sought in other industries.
- Monitoring Legislative Outcomes: Since the bill is still under review in the House, and its final form is not yet known, clients and advisors alike should monitor developments closely.
As such, the implications of this law can be extremely nuanced and complicated. In order to stay up to date and ensure that your financial goals are on track, you may want to consider a financial advisor to delineate next steps and possible shifts in planning as a result of the ever-changing legal landscape.
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Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
