No Tax on Large Party Tips Act
No Tax on Large Party Tips Act is a narrowly targeted bill that asks Congress to clarify how certain types of tips are treated for tax purposes. Specifically, it provides that, for purposes of the tax deduction for qualified tips under the Internal Revenue Code, tips that are automatically added to a customer’s bill and tips that are prompted by a business (i.e., suggested tips) are to be treated as if they were paid voluntarily by the customer. In short, the bill seeks to ensure these auto-added or suggested tips are considered customer-paid tips rather than tips that are automatically collected or mandated by the employer. The bill was introduced in the Senate by Mr. Gallego on September 11, 2025, and referred to the Senate Committee on Finance. It does not appear to introduce new tax rules beyond clarifying how these particular tips should be treated under existing law.
Key Points
- 1Short title: The act is titled the “No Tax on Large Party Tips Act.”
- 2Scope: Applies to the treatment of tips under section 224(d)(2)(A) of the Internal Revenue Code.
- 3Covered types of tips:
- 4- (1) Tips automatically added to a customer’s bill at the time of payment.
- 5- (2) Tips that are suggested or prompted by a business.
- 6Core change in treatment: These auto-added tips and business-prompted tips shall be treated as paid voluntarily by the customer.
- 7Purpose: Clarifies the tax treatment of these tips to align with the concept of customer voluntariness for the purposes of the deduction for qualified tips.