No Tax on Tips Act: What It Means for Restaurant Workers and Servers in 2025

If you’ve ever worked in a restaurant, café, bar, or hotel, you probably know how important tips are. For many people, tips are not just extra—they're the biggest part of their paycheck.

Now, there’s good news for millions of workers across the U.S. The No Tax on Tips Act just passed in the Senate, and it could make a big difference in take-home pay.

In this post, we’ll explain:

• What the No Tax on Tips Act is
• Who it helps
• How much money it could save you
• What comes next
• What business owners should know

Let’s dive in!

What Is the No Tax on Tips Act?

The No Tax on Tips Act is a new bill that removes federal income taxes on tips for workers. It passed the Senate unanimously on May 20, 2025. That means both Democrats and Republicans agreed—it’s rare, and it shows strong support for workers.

This law is not final yet. It still needs to pass the House of Representatives and then go to the President for approval. But since it already passed the Senate with full support, there’s a good chance it will become law soon.

Why Was This Law Created?

The goal is simple: to help workers keep more of the money they earn. Tipped workers often earn below minimum wage and rely on tips to get by. But right now, tips are taxed just like regular wages.

This means:

• Workers lose a chunk of their hard-earned tips to taxes
• They may get smaller paychecks
• It can be hard to pay bills or save money

Lawmakers say this bill is a way to support hardworking people who serve others every day—especially in restaurants, bars, salons, hotels, and similar jobs.

Who Does It Help?

This bill helps anyone who earns tips as part of their job. That includes:

• Restaurant servers
• Bartenders
• Hotel staff
• Hairdressers
• Baristas
• Casino workers
• Valets
• Delivery drivers

If part of your income comes from tips, this bill could help you take home more money.

How Much Money Could Workers Save?

Let’s look at a simple example:

Without the new law:

• A server earns $25,000 in tips per year.
• About 10% to 12% of that goes to federal income taxes.
• That’s $2,500 to $3,000 lost in taxes.

With the new law:

• That same server keeps the full $25,000.
• That’s up to $3,000 back in their pocket—money they can use for rent, food, or savings.

Over time, that adds up. For someone working in the service industry for 10 years, that could mean $30,000 or more saved.

When Would the Law Start?

If the bill becomes law, it could start as soon as next year (2026) or even late 2025. That depends on when the House passes it and the President signs it.

For now, tips are still taxed. But once the law is signed, workers could see larger paychecks right away.

What Do Business Owners Need to Know?

If you own or manage a business with tipped employees, this law may bring some changes. Here’s what to keep in mind:

1. Payroll changes – You may no longer need to withhold federal income taxes on reported tips.
2. More motivated staff – Workers may be happier and more motivated knowing they can keep their full tips.
3. Higher job interest – You might see more job applicants for tipped positions.
4. Reporting rules – You’ll still need to follow tip-reporting rules for tracking purposes.

It’s also a good idea to talk to your payroll provider or tax advisor so you're ready when the law takes effect.

Are There Any Concerns?

Some people say this law could cause issues. For example:

• Will workers still report all their tips honestly?
• Will it be fair to workers who don’t earn tips?

Others argue that removing tax on tips helps only a small group and not all low-income workers.

Still, supporters say this is a step in the right direction. It rewards people who work hard in jobs that often go unnoticed and underpaid.

What Happens Next?

Here’s what to expect:

1. The bill now moves to the House of Representatives.
2. If passed, it goes to the President to be signed into law.
3. The IRS will then update its rules and systems to stop taxing tips.

Many believe the bill will pass quickly, given the strong support in the Senate.

What Should You Do Now?

If you’re a tipped worker, here’s what you can do:

• Keep tracking your tips – Stay organized so you know exactly what you earn.
• Watch the news – Follow updates to see when the law is passed.
• Talk to your employer – Ask how they’re planning to handle the changes.

If you’re a business owner, start talking with your accountant now. Get ready for the shift so you can update your systems and support your team.