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Trump Signs Landmark Tax Bill: Tips Could Soon Be Tax-Free
In a dramatic shakeup to the U.S. tax code, President Donald Trump signed the One Big Beautiful Bill Act (OBBB) into law on July 4, 2025. The sweeping package cements trillions in tax cuts that were set to expire in 2026 while also rolling out new taxpayer perks — from tax-free overtime pay to an extra deduction for seniors.
But the change drawing the most attention is the No Tax on Tips Act, which was folded into the larger reform package. For the first time in American history, millions of waiters, bartenders, and hospitality workers could see their tips shielded from federal taxation.
A Game-Changer for Service Workers
The measure lets employees exclude up to $25,000 in tip income each year from federal taxes, effectively rendering most tips tax-free. Workers would still need to report tips to their employers, but unlike today, those dollars wouldn’t shrink after federal withholding.
“This is about fairness,” said Senator Ted Cruz (R-TX), who co-authored the provision alongside Senator Jacky Rosen (D-NV). “Service workers are grinding long hours and barely scraping by. They deserve to keep more of what they earn.”
Rosen underscored the impact on her home state, calling tipped employees the “backbone of Nevada’s tourism economy” and framing the bill as overdue recognition of their role.
What’s Covered — and What Isn’t
The tax break applies strictly to voluntary gratuities from customers. Mandatory service fees — like auto-added tips for large parties — remain taxable. The carveout also excludes certain professional fields classified as Specified Service Trades or Businesses (SSTBs), such as law, accounting, and consulting.
Still, for restaurants, bars, hotels, and other small businesses reliant on tipped labor, supporters say the change could ease payroll complexity while giving workers a tangible bump in take-home pay.
Looking Ahead
The No Tax on Tips Act marks a profound departure from decades of tax policy. For service workers living paycheck to paycheck, the shift could mean thousands of extra dollars in their pockets each year. Advocates see it not just as a tax cut, but as a recognition of the often-overlooked workforce that keeps America’s hospitality industry running.
In short: for millions of Americans, this isn’t just tax reform — it’s a lifeline.