Senate Unites to Axe Taxes on Tips: What It Means for Millions of American Workers

In a rare show of unity, the United States Senate made history on Tuesday by voting 100–0 to pass the No Tax on Tips Act, a move that would eliminate federal income taxes on gratuities for millions of American service workers. The sweeping, bipartisan legislation marks a significant step toward tax relief for some of the country's lowest-paid workers—those who rely on tips to make ends meet.

Passed on 20 May, the bill establishes a federal tax deduction worth up to $25,000 (£18,636) annually for cash tips reported to employers. It is the first major tax initiative in decades specifically targeting tipped workers. The legislation now heads to the House of Representatives for further consideration.

What the Bill Covers

The bill defines 'qualified tips' as 'any cash tip received by an individual in the course of such individual's employment in an occupation which traditionally and customarily received tips'. These occupations must have existed in this form by 31 December 2023.

Florida Republican Senator Ted Cruz introduced the measure earlier this year, with bipartisan support including Democratic co-sponsor Senator Jacky Rosen of Nevada.

'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 and give real relief to hard-working Americans,' Cruz said on the Senate floor, as reported by NBC News. 'So I'm proud of what the Senate just did, and I commend Democrats and Republicans, even at a time of partisan division, coming together and agreeing on this commonsense policy.'

Who Qualifies for the Deduction?

The legislation offers the deduction to 'all individual taxpayers' who report their tips to employers for payroll tax purposes. According to Fox News, eligibility is limited to workers in traditionally tipped occupations and who earned less than $160,000 (£119,281) in the previous tax year.

Within 90 days of the bill's enactment, the Secretary of the Treasury must publish a list of occupations considered traditionally tipped.

Senate Democratic Leader Chuck Schumer also voiced support for the bill. In a statement released on 20 May, he highlighted the types of workers who stand to benefit most.

'Thanks to Senator Rosen's incredible leadership, we are one step closer to eliminating taxes on tipped wages for hardworking Americans,' Schumer said. '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.'

Who Will Be Affected—and How?

A study by the Budget Lab at Yale University, published on 24 June 2024, helps contextualise the impact. Researchers estimated there were 4 million tipped workers in 2023, representing about 2.5 per cent of the US workforce. Occupations likely to be covered include bartenders, barbers, waitresses, waiters and hairdressers.

The study found that tipped workers skew younger, with a median age of 31—ten years younger than the 41-year median for non-tipped employees. Additionally, 13 per cent of tipped workers are teenagers.

Financially, 37 per cent of tipped employees earned so little that they were not required to pay federal income tax. That figure is significantly higher than the 16 per cent of non-tipped workers who fall into the same category.

If the bill becomes law, eligible workers can begin claiming the deduction on their 2025 tax returns, which they will file in early 2026. The deduction is scheduled to expire on 31 December 2028.

A Rare Bipartisan Victory

The unanimous Senate vote underscores a highly unusual moment of bipartisan cooperation in an increasingly divided Congress. As highlighted by Politico, Democrats quietly supported the bill alongside Republicans, illustrating a shared commitment to supporting the working class through targeted tax relief.