No Tax on Tips? New Law Could Let Servers and Bartenders Keep Thousands in 2025

Tip Workers Could Soon Pay No Tax on Tips—Here’s What That Means

Imagine working hard all day, earning cash tips—and then keeping every dollar. That dream could soon be real for millions of Americans. A new law just passed in the Senate that would make up to $25,000 of tip income tax-free each year for many service workers.

It’s called the No Tax on Tips Act, and it could change the lives of servers, bartenders, delivery drivers, and more.

Let’s break it down in simple terms, so you can understand how this bill works, who it helps, and what it could mean for the future.

What Is the No Tax on Tips Act?

In May, the U.S. Senate voted unanimously to pass a bill that would stop the federal government from taxing tips—up to a certain amount.

Here’s what the bill says:

If you earn less than $160,000 per year, you don’t have to pay federal income tax on up to $25,000 in tips.
The tip money must be reported (so it’s not “under the table”).
It only covers cash tips and some credit card tips that are passed on to workers.

This is one of the biggest tax breaks for service workers in years.

Who Does This Help?

This bill helps people in jobs where tips make up a big part of their income, including:

Waiters and waitresses
Bartenders
Food delivery drivers
Hotel staff
Barbers and hairstylists
Nail technicians
Taxi and rideshare drivers

Most of these workers make between $30,000 and $50,000 per year. Tips are a huge part of their paycheck—and now they might not have to give some of that to the IRS.

How Much Money Could You Save?

Let’s say you make:

$40,000 a year total
$18,000 of that from tips

Under the old rules, you’d pay income tax on all $40,000.

Under the new rule, you’d only pay tax on $22,000.

That could save you thousands of dollars each year—money you can use for rent, bills, food, or even saving for your future.

What’s the Catch?

Like most good things, there’s a catch—or at least, a cost.

While the bill helps workers, it also means the government collects less money. That money is usually used to pay for things like:

Roads and bridges
Schools
Health programs
Social Security and Medicare

Experts say that if this bill becomes law permanently, it could add $40 billion to the national deficit by 2028. If Congress makes it a long-term law, the cost could rise to $120 billion.

So while this is great news for workers, lawmakers are debating how to pay for it.

What Do Supporters Say?

Supporters of the bill say:

Workers deserve to keep their tips. They earned it.
Tips are extra money that should not be taxed like regular wages.
This will boost morale in low-paying service jobs.
It could even encourage more people to work in hospitality and service industries, where there are still worker shortages.

One Senator said, “If you earn tips by working hard, you should keep every penny.”

What Do Critics Say?

Critics agree that workers deserve fair pay. But they worry about:

Lost tax revenue, which could hurt government programs.
Cheating or underreporting, since tips are often in cash.
Favoring one group over others who also need tax help—like teachers, nurses, and delivery drivers who don’t get tips.

Some experts also worry this could encourage restaurants to pay lower base wages, expecting tips to make up the difference.

Is This Law Already in Effect?

Not yet. The Senate passed the bill in May, but now the House of Representatives must vote on it.

If the House passes the bill, it will go to the President to be signed into law.

If that happens, workers could start seeing the change in 2025.

What Should Tip Workers Do Now?

Here’s what you can do while waiting:

Keep good records of your tips.
Report all tip income on your tax return (even now, that’s the law).
Talk to a tax professional to plan for next year.
Stay informed—we’ll update you if the bill becomes law.

If you qualify, this law could mean big tax savings in your next return.

How Could This Affect the Economy?

Let’s look at the big picture.

If 4 million people suddenly pay less tax, that’s more spending power for:

Groceries
Childcare
Rent
Gas
Local businesses

That could be good for the economy overall. But if the government collects less tax, it might have to cut back on services or borrow more money. It’s a tough balance.

Some people think it’s worth it to help hardworking tip earners. Others want more studies done first.