.png)
-2.png){kind=logo}
A friendly guide to what the “No Taxes on Tips” bill means for tipped workers and their employers from the tax experts at Anchor Accounting.
Key points:
The “No Tax on Tips Act” is a proposed piece of federal legislation that recently passed the U.S. Senate with unanimous support and is now awaiting review in the House of Representatives. The goal? To provide tax relief for tipped workers while expanding an existing employer tax benefit known as the FICA Tip Credit.
This bill introduces two key changes:
Together, these changes aim to increase take-home pay for workers and reduce payroll tax burdens for employers without changing how tips are paid or reported.
If you work in a traditionally tip-reliant industry and earn a significant portion of your income in tips, the “No Taxes on Tips” bill could reduce how much of your tip income is taxed by the federal government.
Under the proposed law, eligible employees will be able to deduct up to $25,000 of reported tip income from their federal taxable wages each year.
To qualify:
This change encourages accurate tip reporting while rewarding employees for their earned income. If approved, the bill could significantly increase take-home pay for workers across the service industry.
The “No Taxes on Tips” bill also proposes to expand access to the FICA Tip Credit, a payroll tax benefit that allows employers to recover a portion of the Social Security and Medicare taxes they pay on employee-reported tips.
Previously, this credit applied only to employers in the food and beverage industry. The No Tax on Tips Act would extend eligibility to certain beauty and personal care industries, including:
This credit doesn’t change how employers pay or report tips, it simply offers a financial benefit for following the rules. Employers may also be eligible to claim past credits for up to three prior open tax years, creating an opportunity for meaningful savings.
For now, both employees and employers should be aware that the bill is still in progress. While it has passed the Senate, the House will need to review and approve the legislation before it becomes law.
Additionally, the U.S. Treasury has been directed to publish a full list of qualifying tipped occupations within 90 days of the bill’s approval, meaning the timeline for that release may vary. This list will help clarify eligibility for businesses outside the food and beverage space. Be sure to follow our socials for updates.
In the meantime, businesses in the food and beverage industries can take advantage of the existing FICA Tip Credit.
If you're a business owner in the food and beverage industry and your team earns tips, Anchor’s full-service FICA Tip Credit Program can help you navigate the filing process from start to finish. We’ll help you determine your eligibility, file properly and stay ahead of future changes — all with no upfront cost to your business.
We handle everything from compliance checks and filings to IRS audit defense and credit tracking. Unlock the value of the tips you’re already reporting and turn your payroll taxes into a long-term financial benefit.
Start your free eligibility review to learn more about the FICA Tip Tax Credit.
[Start Your Free Eligibility Check]
1. Who is eligible for the No Tax On Tips Act?
Employees who work in traditionally tipped roles and earn less than $160,000 in the previous year may qualify to deduct up to $25,000 in reported tip income from their federal income taxes, as long as those tips are properly reported through payroll.
Keep in mind, the U.S. Treasury has been directed to publish a formal list of qualifying occupations within 90 days of the bill’s approval, so the exact scope of eligibility may evolve as that guidance is released.
2. When does the No Tax on Tips Act go into effect?
The bill has passed the U.S. Senate but has not yet been signed into law. It still needs approval from the House of Representatives. If enacted, the U.S. Treasury will release a list of qualifying tipped occupations by August 2025, with full guidance to follow.
3. Does the No Tax on Tips Act make payroll taxes deductible for employers?
No. The proposed tip income deduction applies only to federal income taxes for employees. Employers may still benefit from the FICA Tip Credit, which reduces payroll taxes paid on reported tips.
4. How does the No Tax on Tips Act affect the FICA Tax Tip Credit?
Under current law, the FICA Tip Credit is available to food and beverage employers like restaurants, bars and cafés. If the No Tax on Tips Act passes, eligibility would expand to include businesses in certain beauty and personal care industries, including barber shops, hair and nail salons and spas.
The full scope of qualifying industries has not yet been finalized. The U.S. Treasury is expected to release a list of eligible occupations within 90 days of the bill’s approval, providing clearer guidance for employers across service-based industries.
5. Can businesses claim any benefits from the No Tax on Tips Act right now?
While the No Tax on Tips Act has not yet been enacted, employers in certain food and beverage businesses can currently claim the FICA Tip Credit under existing tax law. Anchor can help you determine your eligibility today and ensure you're prepared to take full advantage of any new opportunities if the legislation passes.
© 2025 Gig Worker Solutions, Inc. All rights reserved.
