Senate Passes ‘No Tax on Tips’ Act, Sparking Optimism Among Service Industry Advocates

WASHINGTON D.C. — In a rare display of bipartisan unity, the U.S. Senate unanimously passed the “No Tax on Tips Act” on May 20, 2025, marking a significant step toward changing the financial landscape for millions of American service workers. The bill, which now heads to the House of Representatives, would exempt up to $25,000 in annual tip income from federal income tax for employees earning $160,000 or less.

Sen. Jacky Rosen, D-Nev., who brought the bill to the floor for a unanimous consent vote, emphasized its importance to her state, which has the highest per capita rate of tipped workers in the country. “This bill would mean immediate financial relief for countless hard-working families,” Rosen said on the Senate floor.

The measure has received broad support from both parties and the backing of industry groups like the National Restaurant Association. Originally introduced by Sen. Ted Cruz, R-Texas, alongside bipartisan co-sponsors including Nevada Senators Rosen and Catherine Cortez Masto, the bill offers a 100% federal income tax deduction for reported cash tips up to the annual threshold. The term “cash tips,” as defined by the legislation, includes payments made via bills, coins, credit cards, or business-run electronic systems.

Republican U.S. Rep. Jimmy Patronis, who also serves as Florida’s Chief Financial Officer and co-owns Captain Anderson’s Restaurant in Panama City Beach, described the legislation as a transformative economic incentive for the hospitality industry. “I would think most restaurants are going to have people standing in line to wait tables just because of how lucrative a benefit that’ll become,” Patronis said during an interview with News Radio 1620.

The practical implications for workers are substantial. For instance, a bartender earning $70,000 a year, including $25,000 in tips, would only pay federal income tax on $45,000 of that total, as explained by legal analysts from JD Supra. The deduction is not expected to affect state and local taxes unless similar provisions are enacted at those levels.

Despite the bill's popularity, it has faced criticism from some labor advocates and tax policy experts. Critics argue that the tax exemption might only benefit a subset of workers who already earn enough to owe federal taxes, while reinforcing a dual-wage system that many are trying to reform. Others warn it could lead to wage reclassification strategies that reduce employer responsibilities.

Still, bipartisan agreement signals momentum. “Whether it passes free-standing or as part of the bigger bill, one way or another, No Tax on Tips is going to become law,” said Cruz. Senate Minority Leader Chuck Schumer, D-N.Y., praised the passage, adding, “Working Americans...from servers, to bartenders, delivery drivers, and everything in between — work hard for every dollar they earn and are the ones who deserve tax relief, not the ultra-rich.”

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