Bill to make tips tax-free
On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBB) into law.
The measure makes permanent the sweeping tax reductions that were set to expire in 2025,
while also adding new benefits such as tax-free overtime pay and an extra deduction for seniors.
According to the Congressional Budget Office, OBBB is expected to increase federal deficits by $3.4 trillion
over the next decade.
Supporters argue the law delivers financial relief to millions of Americans, while critics say it
disproportionately benefits select groups and worsens the nation’s debt outlook.
One of the most notable provisions under OBBB is the No Tax on Tips Act, which has already passed the U.S. Senate.
The measure allows tipped workers to deduct up to $25,000 of tip income from their taxable earnings.
This directly impacts millions of service industry employees who often rely on tips to make ends meet.
Currently, tipped workers must report tips as taxable income, and employers are required to withhold taxes.
If enacted, tips would still need to be reported but would no longer be subject to federal income taxes.
Wages and employer-paid bonuses would remain taxable.
