A new bill that would provide a tax deduction for tips up to $25,000 was approved by the US Senate.
If passed into law, this bill would also cover business tax credits for payroll taxes on tips for spa and beauty services.
The proposal, which was supported by Texas Republican Senator Ted Cruz, passed unanimously, an unusual result for significant legislation.
The new bill has some restrictions. For example, an employee who received more than $160,000 in compensation during the previous tax year would not be able to claim the new tip tax deduction.
Only cash tips from traditionally tipped occupations are covered by the bill.
Waiters, waitresses, and professionals offering beauty services like barbering, hair and nail care, esthetics, body and spa treatments are examples of “tipped occupations,” which are occupations where tips are customary in the United States.
According to the Yale Budget Lab, there will be about 4 million people in tipped occupations by 2023.
In order for payroll taxes to be withheld, the employee must also report them to the employer.
The only tips that must be reported under the current law are those that exceed $20 per month.
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A non-tipped worker in 2023 was at least ten years older than the average tipped worker, according to the Budget Lab report.
Additionally, they claim that 13% of the tipped workers were teenagers and that one-third of them were under 25.
According to the center-right Peter G. Peterson Foundation, if this new bill is approved, federal revenues would be required to pay $110 billion over a ten-year period.
During her floor speech, Sen. Jacky Rosen, a Democrat from Nevada, noted that this bill was one of the main campaign pledges made by President Donald Trump.
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“I am not afraid to embrace a good idea, wherever it comes from. So I agreed we need to get this done,” she stated.
As congressional Republicans work to advance a massive tax cut and spending package that will create a tip tax break for the next four years, this bill passes the Senate.
Before it becomes law, it must pass the House of Representatives.
