What the Tip Deduction Means for Hospitality Employees
THE U.S. SENATE recently passed the “No Tax on Tips” Act in a 100-0 vote, allowing hospitality workers to deduct 100 percent of their reported tips—whether received in cash, by card, or by check—from federal income taxes. The American Hotel & Lodging Association supported the legislation, saying it will help hospitality workers keep more of their income.
The bill, introduced in January by Senator Ted Cruz, R-Texas, with bipartisan cosponsors including Sens. Jacky Rosen and Catherine Cortez Masto of Nevada, establishes a tax deduction of up to $25,000 for tips.
Sen. Rosen presented the bill through a unanimous consent request that passed without objection on May 20 and now heads to the House of Representatives.
“This legislation will affect millions of Americans by removing taxes on tips,” Cruz said. “I urge my colleagues in the House to pass the bill and send it to the president to be signed into law.”
Under current law, employees who receive more than $20 in tips per month must report them to their employer.
The bill states that cash tips received by employees in occupations that typically receive tips, such as hospitality or restaurant work, and tips reported to employers for payroll tax withholding will be eligible for a tax deduction, provided the employee earns less than $160,000 this year, with the threshold adjusted annually for inflation. It also expands a business tax credit for payroll taxes employers pay on tips related to beauty, body and spa services.
Rosanna Maietta, AHLA’s president and CEO, said the association applauds the U.S. Senate for unanimously passing the act.
“This bipartisan legislation will put more money in the pockets of the hundreds of thousands of hotel workers who receive tips, ranging from housekeepers and valets to food service professionals and bellhops,” she said.
Both Republicans and Democrats supported the bill, as tips make up about 23 percent of restaurant workers’ total income. President Donald Trump and former Vice President Kamala Harris both backed the bill during their campaigns last year.
However, some say the bill could discourage employers from raising basic wages over time.
More than 250 AHLA members recently met with lawmakers on Capitol Hill to discuss hospitality priorities, including implementing “No Tax on Tips” to help hotel employees keep more of their income.
