In a landmark move for service industry workers, the U.S. Senate unanimously passed the No Tax on Tips Act (Senate Bill 129) on May 20, 2025. The decision marks a significant step toward eliminating federal income taxes on tips. The legislation aims to provide tax relief for workers like servers, bartenders and delivery drivers. But when does No Tax on Tips start? What does No Tax on Tips mean for tipped workers?
What you need to know about the No Tax on Tips Act
The No Tax on Tips Act, formally known as Senate Bill 129, was introduced on January 16, 2025, and co-sponsored by Senator Jacky Rosen, among others. The bill amends the Internal Revenue Code to allow a federal income tax deduction of up to $25,000 annually for qualified cash tips reported to employers. The Senate-passed tax exemption measure aims to ease the financial burden on service workers who rely heavily on tips as a primary income source.
The legislation specifically targets tax on tips. The bill aims to ensure that tipped income in roles like hospitality and food service is no longer subject to federal income tax, within the $25,000 cap. Importantly, the bill does not extend to no tax on overtime or other forms of income. This will help keep its focus narrowly on tips. This precision also helps prevent misuse, such as reclassifying salaries as tips, which is prohibited.
No Tax on Tips Start Date, When Will It Take Effect?
The No Tax on Tips start date is not explicitly stated in the legislation. However, based on available information, the No Tax on Tips Bill is expected to take effect for the 2025 tax year, starting January 1, 2025. That is if it clears the House of Representatives and is signed into law by the President. Our timeline suggests that workers could deduct tips earned in 2025 when filing their 2026 tax returns.
The bill’s swift passage through the Senate via unanimous consent signals strong bipartisan support. It also increases the likelihood of timely House approval. Once enacted, the No Tax on Tips Bill will provide immediate relief to over 2.2 million tipped workers nationwide.
Why No Tax on Tips start date matters
The No Tax on Tips Act is a game-changer for financial wellness in the service industry. By eliminating federal taxes on tips, workers can retain more of their hard-earned income. The $25,000 deduction cap ensures that the benefit targets low- to middle-income earners.
While the bill does not address No Tax on Overtime, its focused approach has garnered widespread support from industry groups like the National Restaurant Association.
What’s next?
The No Tax on Tips Bill start date now awaits House approval. If you’re wondering when does No Tax on Tips start, the answer is late 2025. Until then, workers should stay informed about updates to ensure they maximize the benefits of this tax exemption.
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