The No Tax on Tips Act provides a federal income tax deduction of up to $25,000 for qualified cash tips and extends the FICA tax credit for employer-paid tips to include beauty service establishments.
Vern Buchanan
Representative
FL-16
The "No Tax on Tips Act" proposes a federal tax deduction of up to $25,000 per year for cash tips received by workers in traditionally tipped occupations. Additionally, the bill expands the existing tax credit for employer-paid Social Security taxes on tips to include beauty service establishments. These changes are designed to provide tax relief for service workers and support businesses where tipping is customary.
No Tax on Tips Act Proposes $25,000 Annual Deduction for Service Workers Starting in 2025
The No Tax on Tips Act aims to let service workers keep more of their hard-earned cash by creating a federal tax deduction for up to $25,000 in reported tips each year. Under Section 2, this deduction would apply to cash tips received in occupations that 'traditionally and customarily' receive them. It is designed to be accessible; you do not have to itemize your taxes to claim it, meaning even if you take the standard deduction, you can still shave up to $25k off your taxable income. To keep this focused on service-level staff, the bill excludes anyone who was considered a 'highly compensated employee' in the previous year—generally those making over a specific six-figure threshold set by the IRS.
The Tip Jar Transformation
For a server at a local diner or a bartender working weekend shifts, this change could mean a significantly lower tax bill and more take-home pay in every paycheck. Because Section 2 requires the Treasury Department to adjust withholding tables, employers would stop taking as much tax out of your wages upfront. For example, if you report $15,000 in tips over the year, that entire amount could effectively become tax-free at the federal level. The bill also tasks the Secretary of the Treasury with publishing a definitive list of eligible jobs within 90 days of the law passing, which will be the 'make or break' moment for gig workers or newer service roles wondering if they qualify for the break.
Beauty and the Bill
While the first half of the bill focuses on the workers, Section 3 turns its attention to the shop owners—specifically in the beauty industry. Currently, restaurants get a tax credit for the Social Security taxes they pay on employee tips; this bill extends that same perk to barbershops, nail salons, and spas. If you own a small hair salon, you could claim a credit for the FICA taxes you pay on your stylists' tips, calculated based on the current federal minimum wage. This levels the playing field between the hospitality and beauty sectors, though it does create a slight quirk: restaurant credits stay pegged to the 2007 minimum wage ($5.15), while beauty shops get to use the current, higher rate.
Reading Between the Lines
Because the bill leaves it up to the Treasury Department to decide which jobs are 'traditionally' tipped, there is a bit of a gray area for workers in emerging service fields. If you work at a coffee shop with a digital tip screen or a boutique fitness studio, your tax relief depends entirely on that list the government has to write. Additionally, while this is a win for the wallet of a stylist or server, it does mean less revenue flowing into the U.S. Treasury. For the average person, the trade-off is clear: immediate relief for the service industry versus a broader conversation about how the government fills that funding gap down the road.