Trump’s No Tax on Tips Act – What It Means for Service Industry Workers

Trump’s No Tax on Tips Act – What It Means for Service Industry Workers

Understanding the No Tax on Tips Act: What It Means for Service Workers Introduction President Donald Trump has recently endorsed a significant new tax initiative focused on service industry employees. The proposed No Tax on Tips Act is designed to eliminate federal income taxes on cash tips for eligible workers. This potential tax break could offer substantial financial relief to millions of Americans who rely on tips as a core part of their income. At Raha Financials, where we specialize in outsourced accounting and bookkeeping services, we’re keeping a close eye on how this could impact clients in the hospitality and service sectors.

What Is the No Tax on Tips Act? The No Tax on Tips Act allows workers earning less than $160,000 annually to deduct up to $25,000 in tips (as reported on W-2 forms) from their federal taxable income. This bipartisan bill

has already passed unanimously in the Senate, signaling broad support for easing the tax burden on tipped employees. It’s important to note that payroll taxes—including Social Security and Medicare—will still apply, and some state and local tax regulations may continue to apply to tip income.

Who Will Benefit? This tax exemption primarily benefits workers in roles where tipping is common—such as restaurant servers, bartenders, salon workers, rideshare and taxi drivers. Since these individuals often rely on tips to supplement relatively low base pay, this legislation could help improve their financial stability and increase take-home income.

Limitations to Consider While promising, the policy does have a few limitations: 

The exemption only applies to federal income tax, not to payroll or state-level taxes.

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The bill has a four-year sunset clause, which means it will expire unless Congress renews it.

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Experts note that very low-income workers may already pay minimal income tax, so the benefit might not be as significant for them.

What Tax Experts Are Saying Some in the tax and payroll services industry argue that a more effective long-term solution could be to eliminate the subminimum wage for tipped workers. By ensuring that all workers earn at least the federal minimum wage—regardless of tips—this could create a more consistent income floor. At Raha Financials, our tax planning and filing services team continues to monitor these discussions to help service workers and business owners make informed financial decisions.

How Tipped Employees Can Prepare If you're a tipped employee, here's how you can stay ahead of the curve: 

Track and report tips accurately, whether they are cash or electronic.

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Ensure your W-2 reflects all reported tips properly.

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Work with your employer or a trusted provider of outsourced bookkeeping USA to keep your finances clean and audit-ready.

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Consider using software integration services to streamline tip tracking with payroll systems.

Our experts at Raha Financials can help you integrate systems for better financial visibility and prepare for upcoming tax changes.

Conclusion The No Tax on Tips Act marks a potentially game-changing development for millions in the service industry. While it doesn’t cover all tax obligations, the elimination of federal income tax on tips could significantly boost net earnings for many. At Raha Financials, we’re here to support you with a range of solutions—from global payroll services to financial management services— so you can focus on what matters most: delivering excellent service and building your future.

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