No Tax on Tips Act 2025: What It Means for Workers and Employers
The "No Tax on Tips Act" has taken the political and economic spotlight in 2025. Announced by President Joe Biden and widely discussed across social media, news outlets, and restaurant break rooms, this proposed legislation could significantly change how tips are treated under federal tax law.
But what exactly is the No Tax on Tips Act? Who benefits from it? And what do employers and employees need to prepare for if it becomes law?
Let’s dive deep into the key details of this trending proposal and unpack its potential impacts.
🔍 What Is the No Tax on Tips Act?
The No Tax on Tips Act of 2025 is a proposed federal bill introduced with the goal of exempting employee tips from federal income and payroll taxes. This means if you're a waiter, bartender, hotel worker, or anyone in a tipped position, you might soon keep 100% of your tips—untaxed.
The bill is modeled after similar conservative proposals but gained widespread attention after President Biden publicly endorsed the idea during a campaign rally in Las Vegas. His move is seen as an effort to gain traction among service industry workers and younger voters ahead of the 2024 election cycle.
If passed, the Act would:
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Remove federal income tax on all reported tip income
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Eliminate Social Security and Medicare (FICA) taxes on tips for both workers and employers
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Shift how the IRS and employers track and report tipped wages
💼 Why Was This Act Proposed?
The service industry, especially restaurants and hospitality, relies heavily on tips to supplement low base wages. In many states, the tipped minimum wage is significantly lower than the standard minimum wage. For instance, in some places, servers make just $2.13/hour plus tips.
Many workers argue that it’s unfair to tax tip income, which is often inconsistent, seasonal, and dependent on customer generosity rather than guaranteed hours.
In President Biden's own words:
“If you leave a tip, that tip should go to the worker — not the IRS.”
By proposing this Act, lawmakers aim to:
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Boost take-home pay for millions of low-income workers
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Increase economic fairness for those in service-based roles
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Simplify tax compliance for tipped workers
👩🍳 Who Stands to Benefit?
The primary beneficiaries of the No Tax on Tips Act would be:
1. Tipped Workers
This includes servers, bartenders, baristas, valets, hotel staff, delivery drivers, and others in roles where tipping is common.
How they benefit:
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Higher take-home income with no taxes withheld from tips
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Reduced stress during tax season — fewer forms and lower liabilities
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Potential for greater job satisfaction and retention
2. Employers in Tipped Industries
Restaurants, salons, and hospitality businesses that rely on tipping could also benefit.
How they benefit:
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No employer-side payroll taxes (FICA) on tips
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Simplified payroll systems
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Lower overall labor costs, which may reduce turnover
📉 Who Opposes the Bill — and Why?
While the idea of untaxed tips sounds appealing, critics and economists have raised several concerns:
1. Potential Loss of Federal Revenue
The IRS currently collects billions in tax revenue from tipped income. Eliminating these taxes could create a major budget gap unless offset by other taxes.
2. Wage Disparity
Some fear the Act may incentivize employers to keep base wages low, knowing workers will rely more heavily on tax-free tips.
3. Tax Compliance Challenges
While the Act aims to simplify taxes, it may actually encourage underreporting of tip income, since the incentive to track tips for tax purposes would vanish.
📊 Real-World Impact: A Simple Example
Let’s say Sarah works as a restaurant server and earns about $800 a week in tips. Currently, around $100–$120 of that is withheld for federal income and payroll taxes.
If the No Tax on Tips Act passes, Sarah would keep the entire $800, potentially increasing her annual income by $5,000–$6,000.
For her employer, the business would save on payroll taxes linked to those tips, further easing operational costs.
🧾 How Will Tip Reporting Work?
One of the major questions surrounding the Act is how tips will be reported if they’re not taxed.
Here’s what experts suggest might happen:
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Employees may still be required to report tips to employers, for record-keeping and wage calculation.
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Employers might need to keep accurate logs of tip-based earnings for compliance with state wage laws.
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The IRS may still require disclosure of total income (even if untaxed) for tracking and fraud prevention.
In other words, reporting may remain—but taxation will not.
🏛️ Status of the Bill: Has It Passed?
As of May 2025, the No Tax on Tips Act is still a proposal. It has not yet passed in Congress.
The bill is currently under review in the House Ways and Means Committee. Supporters are lobbying hard, while critics are asking for economic impact studies before the law is enacted.
With the 2024 election behind us and tax reform being a hot-button issue, analysts believe a decision may come by late 2025 or early 2026.
🗳️ Political Reactions: Support and Criticism
✅ Supporters:
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President Biden (initial proponent)
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Many Democratic and Republican lawmakers from states with strong service industries
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Labor unions and tipped worker advocacy groups
❌ Opponents:
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Some fiscal conservatives concerned about deficits
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Policy think tanks worried about fair wage practices
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Tax experts who predict compliance and enforcement challenges
📣 What Should Workers and Employers Do Now?
Until the bill is passed, workers should continue reporting and paying taxes on tip income as usual. But now is a great time to:
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Track your tip income carefully
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Talk to your employer about how the law could affect your wages and taxes
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Stay informed by following updates from the IRS and Department of Labor
Employers should also prepare to:
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Update payroll systems in case the law is enacted
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Train HR and accounting teams
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Inform staff about what changes may come
🧠 Final Thoughts: Could This Be a Game-Changer?
The No Tax on Tips Act 2025 could be one of the most significant changes to the U.S. tax code in decades—particularly for the millions of workers who depend on tips to make ends meet.
While the promise of more money in workers’ pockets is compelling, the bill still faces legislative hurdles and scrutiny over its long-term impact on the economy.
Whether you're a tipped employee, a small business owner, or just someone following tax reform closely, this is one piece of legislation you’ll want to watch closely.
📌 Stay Updated
Follow this blog for future updates on the No Tax on Tips Act and other major financial legislation affecting everyday Americans. Don’t forget to share this article with coworkers, employers, or anyone in the service industry who needs to know what’s coming next!
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