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Standard Summary
Comprehensive overview in 1-2 paragraphs
No Tax on Tips Act would create a new above-the-line tax deduction for "qualified tips", allowing individual taxpayers to deduct cash tips that are reported to employers. The deduction would be capped at $25,000 per taxpayer per year and would apply to tips that are documented on employer tip statements. It also expands a parallel payroll tax provision by extending the employer tip-credit for Social Security taxes to beauty-service establishments (e.g., barbers, nail care, esthetics, spa services), with adjustments tied to minimum wage levels. The measure would apply to tax years beginning after December 31, 2024 (i.e., starting in 2025). It also requires the Treasury to publish a list of occupations that traditionally receive tips and alters withholding rules to reflect the new deduction.
Key Points
- 1Qualified tips deduction
- 2- There would be a new deduction (section 224) equal to the qualified tips received during the year and reported to the employer under 6053(a).
- 3- The deduction is capped at $25,000 per taxpayer for the taxable year.
- 4- "Qualified tips" are cash tips in occupations historically receiving tips as of 2023, with an occupation list to be published by the Secretary; there is an exclusion for certain high-compensation employees from the same employer.
- 5- The deduction applies only to tips that are reported to employers; non-cash tips are not addressed as part of this deduction.
- 6Non-itemizers and itemizers treatment
- 7- The deduction would be available to non-itemizers (standard deduction filers) by adding the deduction to the standard calculation (Sec 63(b)).
- 8- For itemizers, the deduction would not be treated as a miscellaneous itemized deduction (removing it from the 2% floor) and would not be subject to the overall limitations on itemized deductions (Sec 67 and Sec 68).
- 9- Withholding tables would be adjusted to reflect the deduction.
- 10Effective date
- 11- The amendments apply to taxable years beginning after December 31, 2024 (i.e., 2025 tax year).
- 12Extension of tip credit to beauty services
- 13- The law would extend the employer Social Security tip-credit to beauty-service establishments as part of Sec 45B, currently available to certain food/beverage businesses.
- 14- The tip credit would apply to tips received in connection with beauty services (barbering/hair care, nail care, esthetics, body/spa treatments) when tipping is customary.
- 15- The calculation of the credit would be tied to minimum wage levels in effect (with a reference to 2007 wage levels for applicable lines of business).
- 16- Effective date for these changes is also for taxable years beginning after December 31, 2024 (2025).
- 17Administrative details
- 18- The Secretary must publish a list of occupations traditionally receiving tips within 90 days of enactment.
- 19- The bill alters the treatment of the deduction in both non-itemized and itemized contexts and requires withholding adjustments to reflect the deduction.
Impact Areas
Primary group/area affected- Workers who receive cash tips in tipped occupations (e.g., servers, bartenders) and other employees in tipping-based roles who would qualify under the occupation list and reporting requirements.- Employers of these workers, who would need to report tips and adjust payroll withholding to reflect the deduction.Secondary group/area affected- Workers in beauty service industries (barbers, nail technicians, estheticians, spa workers) who would gain access to the extended Social Security tip credit for tips paid by customers.- Employers in beauty services who may benefit from the social security tax credit on tips.Additional impacts- Federal revenue and fiscal impact due to the new deduction and expanded credits (potentially reduced income tax collections and payroll tax relief for certain employers).- Administrative and compliance considerations for employers and the Internal Revenue Service, including the publication of tip-occupation lists and adjustments to withholding tables.- Changes in how tip income is treated for taxpayers, potentially affecting planning for those with variable tip income and those who itemize versus take the standard deduction.
Generated by gpt-5-nano on Nov 19, 2025