The Senate unexpectedly passed the No Tax on Tips Act in a unanimous vote Tuesday, giving weight to the prospect of eliminating federal income tax for cash tips, which picked up political traction during Donald Trump’s presidential campaign.

Here’s what’s in the bill and what it could mean for you.

• Bill S. 129, or the No Tax on Tips Act, creates a federal income tax deduction of up to $25,000 a year for certain types of cash tips for eligible employees. Sen. Ted Cruz (R-Texas) introduced the bill in January.
• Sen. Jacky Rosen (D-Nevada), who co-sponsored the bill, brought it up Tuesday for “unanimous consent” — a type of vote usually reserved for routine congressional matters.
• Democrats and Republicans praised the speedy passage of the bill and framed it as an example of successful bipartisanship. The legislation will now to go the House.

The “No Tax on Tips Act” proposes amending the Internal Revenue Code to exempt “cash tips” — which include tips given in cash, credit and debit card, and checks — from federal income tax. Eligible employees will be allowed to claim a 100 percent deduction in their tax filings for amounts of up to $25,000 per tax year.

The exemption would only apply to tips “received by an individual … in an occupation which traditionally and customarily received tips on or before December 31, 2023,” according to the text of the legislation, which states that the treasury secretary must publish a list of eligible occupations no later than 90 days after the bill’s passage.

In a statement, Senate Minority Leader Charles E. Schumer (D-New York) cited waiters, bartenders and delivery drivers as examples of the types of employees who could become eligible for the tax exemption.

Only employees who were compensated less than $160,000 in the 2024-2025 tax year — an amount that would be adjusted annually for inflation — would be eligible for the exemption, and they would have to report their tips to their employers for purposes of withholding payroll taxes, according to the legislation.

Schumer said in his statement that “working Americans” who receive tips “work hard for every dollar they earn and are the ones who deserve tax relief, not the ultra-rich.” Cruz said in a statement the bill “will have a lasting impact on millions of Americans by protecting the hard-earned dollars of blue-collar workers, the very people who are living paycheck-to-paycheck.”

The bill would also expand the business tax credit “for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments,” according to its congressional description page.

Though Trump is not the first person to suggest cutting taxes on tips — Ron Paul suggested a similar idea when he ran for the GOP nomination for president in 2012, for example — the idea gained serious momentum when Trump brought it up at a Nevada rally in June 2024 that he supported a local waitress’s suggestion that workers shouldn’t pay taxes on tips. Vice President Kamala Harris echoed the idea at a campaign rally in August, an indication of the broad bipartisan support for the proposal.

But, as The Washington Post previously reported, experts say the idea would not actually do much to help working Americans — even though it could cost the government $10 billion to $15 billion each year in lost revenue, according to the nonpartisan Committee for a Responsible Federal Budget.

Tipped workers “do not make up a large share” of the labor force, tend to be “much younger than non-tipped workers, and many already have very low federal income tax liability,” according to an analysis by Yale’s Budget Lab.

The legislation could also prompt employers to shift to remunerating employees with more tips than income or spur workers to reclassify some income as tips, reducing the revenue the government collects through income tax — therefore increasing the cost of the bill, the analysis said.

“Workers, employers, consumers, and tax planners would have an incentive to coordinate their behavior to take advantage of a new tax break,” the Budget Lab said in a previous analysis of the proposal. “In all likelihood, tips would rise and other forms of income would fall, increasing the revenue cost of the proposal.”

Some economists said the policy might actually end up hurting low-income tipped workers by making some ineligible for the earned income tax credit or by reducing their ability to get credit toward eventual Social Security benefits from tips.

During the campaign, Trump’s advisers promoted the idea as a way to reduce the burden of reporting tips on tax returns and encourage more spending to boost the economy.

The No Tax on Tips Act still needs approval from the House. If it passes there, it heads to Trump to be signed into law.

But a version of No Tax on Tips is also included in Trump and House Republicans’ giant tax and immigration bill — which proposes extending Trump’s 2017 tax cuts, massive spending on border security and controversial cuts to social safety net programs — and could get caught up in the broader partisan wrangling over the larger bill, officially known as the One Big Beautiful Bill Act. Trump visited Capitol Hill on Tuesday to persuade Republican holdouts on the larger bill.

House Republicans have the option of decoupling the No Tax on Tips Act from the broader bill and calling a stand-alone vote on it.

The House version of the bill is similar to the Senate’s but contains some notable differences: Under the House version, to claim the deduction on tips, individuals must have a Social Security number, and if they are married, their spouse also has to have a Social Security number, even if they aren’t the one claiming the tips. This appears to effectively block temporary and unauthorized immigrants from claiming the deduction. The House version also puts an end date of Dec. 31, 2028, for the deduction.

On Tuesday, Rosen suggested that the No Tax on Tips Act would be doomed if it stays in the Republican bill, which Democrats oppose and even some in the GOP are balking at. “House Republicans have included a version of the No Tax on Tips Act in their bigger budget bill, a bill that cuts Medicaid, SNAP, and other programs families rely on to give more tax breaks for billionaires and the ultra-wealthy. We shouldn’t be forcing working families to choose between keeping their health care or keeping their tips, which is why we want this bipartisan bill on its own — on its own — not part of a harmful, extreme budget bill,” she said in a statement.

Cruz expressed confidence that the tips bill would eventually pass, even if it had to be put up for a separate vote. “Whether it passes free-standing or as part of the bigger bill, one way or another, No Tax on Tips is going to become law and give real relief to hardworking Americans,” he said on the Senate floor Tuesday.

Jacob Bogage, Julie Zauzmer Weil and Lauren Kaori Gurley contributed to this report.