No Tax on Tips? Shocking New Trump Tax Bill Just Passed!

No Tax on Tips? Shocking New Trump Tax Bill Just Passed!

There's a big update from Washington today. The House of Representatives just stayed up all night and officially passed a major tax bill that includes some eye-catching changes.

One of the biggest headlines? The No Tax on Tips Act is moving forward, and that could mean real savings for millions of service workers.

Let’s take a closer look at what’s in the bill, how it affects tipped workers, and what you need to know.

What Just Happened in Congress?

The bill passed the House by just one vote, 215 to 214, after some intense late-night negotiations. The Senate already passed its version, so now the two sides will need to work out the differences before it heads to the President's desk.

This package includes extensions of several Trump-era tax cuts, but the highlight for many working Americans is the No Tax on Tips Act.

What Is the No Tax on Tips Act?

If you work in a tipped job, this is big news. This could include servers, bartenders, hairstylists, or anyone who regularly reports cash tips.

Here’s how it could help you:

• You could deduct up to $25,000 of reported tips from your federal taxable income
• This deduction is available without itemizing. You can still take the standard deduction
• It’s designed for employees in tipped industries, not self-employed workers
• You must earn less than $160,000 to qualify
• The Treasury Department will release a list of eligible industries within 90 days of the bill becoming law

This means your tax bill could drop significantly if you meet the qualifications and report your tips properly.

Do You Still Have to Report Tips?

Yes, absolutely. The bill does not eliminate your obligation to report tips. Those tips will still be subject to Social Security and Medicare taxes, often known as FICA.

Even though this might sound like a downside, those payroll taxes help you build your Social Security credits, which can increase your future retirement benefits. So it’s actually a win in the long run.

What About State Taxes?

Keep in mind, this is a federal tax change. Your state may still tax your tips as income unless it passes a similar law. Each state will need to decide if it wants to match the federal policy. If you’re unsure, check with your local tax professional or follow your state tax department for updates.

Senate vs. House Versions

There are some key differences between the two versions of the bill.

• The Senate version applies only to employees, not self-employed workers, and it has no expiration date. It would begin in 2025 and continue indefinitely
• The House version includes self-employed workers but is temporary

Before anything becomes law, Congress will need to agree on a final version that reconciles these differences.

Other Major Tax Changes in the Bill

Here are a few more things included in the new bill:

• Extension of the Trump Tax Cuts and Jobs Act from 2017
• An increase in the SALT (State and Local Tax) deduction cap from $10,000 to $40,000 for individuals making under $500,000
• A proposal to eliminate taxes on Social Security benefits, which is still under debate

This is a broad and impactful tax package, and these changes could affect a wide range of taxpayers.

Is It Official Yet?

Not quite. Both the House and Senate have passed versions of the bill, but a final version still needs to be created and signed by the President. If that happens, most changes would begin in 2025.

Final Thoughts From a CPA

Hi, Noel here. As your friendly neighborhood accountant, I want to remind you that while this bill could offer meaningful benefits to tipped workers, it’s not law just yet. Stay tuned and stay informed.

And if you want more financial tips without the fear and fluff, I’ve got a new video dropping this Saturday on how to survive an economic downturn. You can get an early preview over on my Patreon. Here's the link.

What Do You Think?

Do you think this bill is a win for American service workers? I’d love to hear what you think; comment your thoughts in the YouTube video comments. 

Thanks for reading. Be well and stay informed.