No Tax on Tips ActThis bill establishes a new tax deduction of up to $25,000 for tips, subject to limitations. The bill also expands the business tax credit for the portion of payroll taxes an employer pays on certain tips to include payroll taxes paid on tips received in connection with certain beauty services.Under the bill, the new tax deduction for tips is limited to cash tips (1) received by an employee during the course of employment in an occupation that customarily receives tips, and (2) reported by the employee to the employer for purposes of withholding payroll taxes. (Under current law, an employee is required to report tips exceeding $20 per month to their employer.)Further, an employee with compensation exceeding a specified threshold ($160,000 in 2025 and adjusted annually for inflation) in the prior tax year may not claim the new tax deduction for tips.Finally, the bill expands the business tax credit for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments. (Under current law, an employer is allowed a business tax credit for the amount of payroll taxes paid on certain tips received by an employee in connection with providing, delivering, or serving food or beverages.)
This bill aims to alleviate the tax burden on workers who rely on tips as a significant part of their income. By allowing the deduction for tips, it acknowledges the customary tipping practices within various industries while promoting a stronger financial framework for employees whose earnings are supplemented by customer gratuities. The bill is particularly focused on those in the restaurant, bar, and beauty service industries, thereby potentially boosting their take-home earnings.
SB129, known as the 'No Tax on Tips Act', seeks to amend the Internal Revenue Code by introducing a new tax deduction specifically for qualified tips received by individual taxpayers. Under the proposed law, individuals will be able to deduct an amount equal to the qualified tips received during the taxable year, capped at $25,000 per taxpayer. The definition of qualified tips encompasses cash tips received in occupations that have traditionally and customarily received tips, effectively providing a financial benefit to service-oriented workers in the hospitality and beauty sectors.
Noteworthy points of contention surrounding SB129 may arise from concerns regarding its implications for both state revenue and the functionality of the tax system. Critics may argue that such deductions could complicate tax regulations, especially for businesses that are required to report and withhold taxes on employee tips. Furthermore, there can be discussions around fairness, as those in occupations that do not traditionally receive tips might feel disadvantaged compared to their counterparts within tip-centric fields.