Things to know about 'no tax on tips,' Trump's tax pledge that's
included in GOP budget bill
[May 22, 2025] By
WYATTE GRANTHAM-PHILIPS and JONATHAN J. COOPER
NEW YORK (AP) — President Donald Trump's “ no tax on tips ” pledge
became a catchphrase for his 2024 campaign. Now it's inching closer to
reality.
The idea is firmly planted in the sprawling tax cuts package Republicans
are hashing out in the House and aiming to pass in the coming days. And
in a surprise move, the Senate voted this week to unanimously approve
the idea.
The proposal has widespread support from the public, lawmakers in both
parties and employers who believe such a law will bring relief to the
working class. But many critics say that it would come with an enormous
cost to the government while doing little to help the workers who need
it most.
Here's a look at the proposal and its potential impact:
What's in the 'No Tax on Tips’ provision?
It would create a new tax deduction eliminating federal income taxes on
tips for people working in jobs that have traditionally received them,
as long as they make less than $160,000 in 2025. The Trump
administration would publish a list of qualifying occupations within 90
days of the bill's signing.
Only tips reported to the employer and noted on a worker's W-2, their
end-of-year tax summary, would qualify. Payroll taxes, which pay for
Social Security and Medicare, would still be collected.
If adopted, the proposed deduction is set to expire after four years.
Congressional budget analysts project the provision would increase the
deficit by $40 billion through 2028. The Committee for a Responsible
Federal Budget, an advocacy group, projects the cost would be $120
billion over a decade if the tip exemption is made permanent.
What did Trump say during the campaign about eliminating federal
taxes on tips?
Trump made the promise during a campaign stop in Las Vegas, where the
service sector drives the economy, as part of his pitch to working-class
voters struggling with rising costs.
Segments of his base eagerly spread the word, writing the catchphrase on
their restaurant receipts or talking to their barbers about it while
getting a trim.
Trump offered few details at the time, but later made similar pledges to
eliminate taxes on other forms of income, including overtime wages and
Social Security payments. Those ideas, along with a tax deduction for
auto loan interest, are also included in the GOP's budget bill.
“No tax on tips” was later embraced — with limits — by the influential
Culinary Union, which represents Las Vegas Strip hospitality workers,
Nevada's Democratic senators and Vice President Kamala Harris, Trump's
Democratic rival.
How could it impact workers?
Experts say some middle-income service workers would benefit from a tax
break but warn that it could potentially heighten inequities.
“If your goal is to help the poorest service workers, this is probably
not the way to do it,” said Michael Lynn, a professor of services
marketing at Cornell University whose research largely focuses on
tipping and other consumer behavior.
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 About a third of tipped workers make
too little to owe income taxes. Those workers won't benefit from the
tax break, so its benefits will accrue to tipped workers with higher
incomes, Lynn said.
“It’s overlooking non-tipped workers who need the help just as
badly, and it’s giving the benefit predominantly to the least needy
of the tipped workers,” Lynn said.
The median age for tipped workers is 31, a decade younger than the
median non-tipped worker, and they tend to make lower wages,
according to the Yale Budget Lab.
Among tipped workers who make enough to owe Uncle Sam, the average
tax cut would be about $1,800, according to the Urban-Brookings Tax
Policy Center.
The measure also would be complicated to enact.
What do employers say?
The National Restaurant Association is among industry groups that
have been strong backers of a “No Tax on Tips” provision. When
reached for comment Wednesday, a spokesperson pointed The Associated
Press to a previous statement following the legislation’s
introduction in January.
“Eliminating taxes on tips would put cash back in the pocket of a
significant number of workers in the restaurant and food service
industry and could help restaurant operators recruit industry
workforce,” Sean Kennedy, executive vice president of public affairs
for the association, said at the time — calling the No Tax on Tips
Act “sensible legislation” that he said includes “fiscally
responsible” protections.
And in Nevada, the Culinary Workers Union specifically credited the
state’s two Democratic senators, Catherine Cortez Masto and Jacky
Rosen, with working with Republicans to push the legislation forward
— and called on the House to “get this done for working families.”
The union represents about 60,000 casino and hotel workers across
the state, including bartenders, food servers and cocktail servers
who rely on tips.
But other groups representing workers shared criticism of the
legislation.
One Fair Wage, an advocacy group made up of nearly 300,000 service
workers and over 1,000 restaurant employers pushing to raise the
minimum wage, said the measure would offer “moderate relief for
some” but is part of a tax package that “just helps the richest
while leaving the vast majority behind.”
“For all the bipartisan celebration … this bill is a distraction
from the real fight,” Saru Jayaraman, president of One Fair Wage,
stated — again stressing that it was time to raise the minimum wage.
The nonprofit also calls for ending tip credits that allow lower
base wages for tipped workers in many states.
______
Cooper reported from Phoenix. AP Writer Rio Yamat contributed to
this report from Las Vegas.
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