The Senate has just passed landmark act that could have major impact on tipping

Tipping culture has found its way to countries like the UK in the shape of automatic gratuity added to restaurant bills, but by and large people tend to be much less tip-conscious than in the US.

Over there, the minimum wage is generally so low that it can’t be lived on, and service staff generally get the short end of the stick when it comes to guaranteed pay packets.

With restaurants and bars generally expecting pay to be made up in tips, incentivising good service, it’s become a pernicious reality that the onus is on US customers to tip generously to help ensure service staff can pay their bills.

The proposals could save bar and restaurant workers a hefty chunk off their tax bill (MaximFesenko/Getty Images)

It’s a contentious subject, and who knows what the cultural effect will be of knowing that tips won’t be subject to the same tax implications as salaried pay.

That’s what the incoming legislation around tips will trigger, anyway, with a bipartisan bill having been passed unanimously in the US Senate that could mean a total removal of income tax on tips for restaurant workers and bartenders. The bill also covers other occupations with a heavy reliance on tips.

The No Tax on Tips Act was passed on May 20th having been introduced by Senator Ted Cruz in January. It was supported by Republicans and Democrats alike and advanced President Trump’s campaign pledge to reduce the tax burden on tip-reliant workers.

This legislation seeks to exempt tips from federal income taxes, and some proposals would end this to payroll taxes too. It could amount to a tax deduction of as much as $25,000 (£18,400) for applicable workers.

An example from Today.com suggested a bartender who earns $70,000 (£51,600) in a year, with $25,000 of that coming from tips, would only be federally taxed on the $45,000 that didn’t come from tips.

Accounting for particularly high earners, the proposed legislation wouldn’t apply to employees earning over $160,000 (£118,000), and it will only apply to ‘an occupation that customarily receives tips’.

The legislation would affect any occupation that's typically reliant on tips (Stefania Pelfini, La Waziya Photography/Getty Images)

Before becoming law, the No Tax on Tips Act will need approval from the House of Representatives before then being signed by President Trump. There’s no official date for the Act to come into effect as of May 27th 2025.

“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 hard-working Americans,” said Senator, according to NBC News.

“So I’m proud of what the Senate just did, and I commend Democrats and Republicans, even at a time of partisan division, coming together and agreeing on this common sense policy.”

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