A unanimous Senate passed the No Tax on Tips Act (S. 129), which, if enacted, would allow taxpayers to claim an above-the-line deduction of up to $25,000 in qualified tips beginning with the 2025 taxable year for those tips reported to their employer for payroll tax purposes. Qualified tips would be defined as cash tips received by an individual in the course of their employment in an occupation that traditionally and customarily received tips prior to 2024. These occupations would be determined by the Secretary of the Treasury.
Taxpayers who were considered highly compensated employees in the prior year ($155,000 for 2024, $160,000 for 2025) would be ineligible to claim the deduction.
The bill would also expand the Employer Tax Credit for FICA paid on tip income to apply to tips provided to beauty service workers. Beauty services would be defined as barbering and hair care, nail care, esthetics, and body and spa treatments.
The No Tax on Tips Act is similar to the no tax on tips provision contained in the House’s The One, Big, Beautiful Bill Act (OBBBA). However, unlike the OBBBA provision, there is a cap on the amount of the deduction and there is no Social Security number requirement or sunset clause contained in the Senate’s bill.
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