SUBSCRIBE & SAVE Less than $3 per week View Profile The Explainer Talking Points The Week Recommends Newsletters From the Magazine The Week Junior Food & Drink Personal Finance All Categories Newsletter sign up Personal Finance the explainer What to know about the 'no tax on tips' policy The new bill would make tip income exempt from federal income taxes Newsletter sign up The tax break will apply to waiters, bartenders, delivery drivers and beauty service workers (Image credit: Peter Gazeley / Getty Images) Becca Stanek, The Week US 6 June 2025 Typically, the government wants a cut of any money you earn. But soon, tips earned on the job may become an exception to that rule. Following promises from both parties during the last presidential election, the "no tax on tips" policy is now one step closer to becoming a reality after passing both the House and Senate. Should the bill become law, that would mean the end of federal income tax on tips — with some caveats. How would the 'no tax on tips' policy work? Put simply, the new bill would "make tip income exempt from federal income taxes," said The New York Times. Workers would still have to track and report tips, but instead of including them as income, "that amount will be subtracted from reported income as an 'above the line' deduction on a tax return." This would ultimately "reduce how much income tax is owed." Subscribe to The Week Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives. SUBSCRIBE & SAVE Sign up for The Week's Free Newsletters From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox. From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox. The deduction would apply to "100% of qualifying tipped income, including tips that come from cash, debit and credit card transactions," said Money. It would be capped at $25,000 per year. Who does 'no tax on tips' apply to? This tax break would apply to those who "traditionally and customarily received tips on or before December 31, 2023," per the bill, which includes "waiters, bartenders and delivery drivers" as well as "beauty service workers," said Time. A complete list of eligible occupations is set to become available "90 days after the bill's passage." Even in an eligible occupation, workers in order to qualify must "earn less than $160,000 in 2025" and have a Social Security number ("if they are married, their spouse must also have a Social Security number"), said CBS News. It is also necessary for the tips to be "reported to the employer and included on the worker's W-2 tax form." Are there any drawbacks to the policy? While the proposal has gotten widespread support in Washington and likely sounds appealing to those who get tips, it has not gone without criticism. For one, some detractors argue the bill would not do anything to help the lowest-earning workers. As it stands, "4 in 10 tipped workers earn too little to pay federal income taxes, which means they wouldn't see any benefit," said CBS News. Further, "other workers, like cooks, dishwashers or other behind-the-scenes staff who don't usually receive tips, won't receive a tax break under this bill," said Kiplinger. There are also concerns that the new policy "would incentivize employers to keep base wages stagnant" as well as impact workers' "eligibility for other programs, such as the child tax credit and earned income tax credit, or reduce their contributions to Social Security," said Time. When would the 'no tax on tips' policy take effect? This policy is still not law. But if it is enacted, the change "would deliver immediate tax relief," becoming "available for tax years after Dec. 31, 2024, including the current tax year (2025)," said Money. Sign up for Today's Best Articles in your inbox A free daily email with the biggest news stories of the day – and the best features from TheWeek.com Contact me with news and offers from other Future brandsReceive email from us on behalf of our trusted partners or sponsorsBy submitting your information you agree to the Terms & Conditions and Privacy Policy and are aged 16 or over. Becca Stanek, The Week US Social Links Navigation Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads. 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