This bill matters because it could provide significant financial relief to a large segment of the workforce, particularly those in hospitality and personal services, who often rely heavily on tips to make a living. By reducing their income tax burden on a substantial portion of their tips, these workers would have more disposable income, which could help them cover daily expenses, save money, or stimulate local economies through increased spending.
Without this bill, all tips continue to be fully taxable as ordinary income. If passed, it changes how these workers manage their finances by effectively increasing their net income from tips for a temporary period of five years. This could be especially impactful in an economy where many service workers face fluctuating incomes and rising living costs.
KEY PROVISIONS
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PROVISION 01
Excludes up to $20,000 of eligible tips from an individual's gross income each year.
This directly reduces the amount of income tax owed by tipped workers, increasing their take-home pay.
PROVISION 02
Defines "eligible tips" as amounts received in positions that generally rely on tips, including cosmetology, hospitality, and food service.
This clarifies exactly which workers and types of tips qualify for the tax exclusion.
PROVISION 03
Specifies that excluded tips will still count when calculating eligibility for the Child Tax Credit and Earned Income Credit.
This prevents lower-income families from losing access to other important tax benefits while receiving the tip tax break.
PROVISION 04
Establishes a temporary period for the tax exclusion, applying to tips received between January 1, 2025, and December 31, 2029.
This sets a clear timeframe for the tax relief, making it a temporary measure rather than a permanent change to tax law.
This bill matters because it could provide significant financial relief to a large segment of the workforce, particularly those in hospitality and personal services, who often rely heavily on tips to make a living. By reducing their income tax burden on a substantial portion of their tips, these workers would have more disposable income, which could help them cover daily expenses, save money, or stimulate local economies through increased spending.
Without this bill, all tips continue to be fully taxable as ordinary income. If passed, it changes how these workers manage their finances by effectively increasing their net income from tips for a temporary period of five years. This could be especially impactful in an economy where many service workers face fluctuating incomes and rising living costs.
KEY PROVISIONS
AI-extracted
high
Excludes up to $20,000 of eligible tips from an individual's gross income each year.
This directly reduces the amount of income tax owed by tipped workers, increasing their take-home pay.
med
Defines "eligible tips" as amounts received in positions that generally rely on tips, including cosmetology, hospitality, and food service.
This clarifies exactly which workers and types of tips qualify for the tax exclusion.
high
Specifies that excluded tips will still count when calculating eligibility for the Child Tax Credit and Earned Income Credit.
This prevents lower-income families from losing access to other important tax benefits while receiving the tip tax break.
med
Establishes a temporary period for the tax exclusion, applying to tips received between January 1, 2025, and December 31, 2029.
This sets a clear timeframe for the tax relief, making it a temporary measure rather than a permanent change to tax law.
The amendments apply to amounts received after this date.
December 31, 2029
The tip tax exclusion will no longer apply to tips received after this date.
GLOSSARY
AI-written
Internal Revenue Code of 1986
The main body of federal tax laws in the United States.
Gross income
All income from any source, before any deductions or exemptions are taken out, which is generally subject to tax.
Eligible tips
Money received by individuals in jobs that typically depend on tips as part of their earnings, such as those in hospitality or cosmetology.
Taxable year
The annual accounting period for keeping records and reporting income and expenses. For most individual taxpayers, this is the calendar year (January 1 to December 31).
Child Tax Credit
A tax benefit available to eligible taxpayers for each qualifying child they claim as a dependent.
Earned Income Credit
A refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children.
Exclusion
An amount of income that is specifically not included in 'gross income' and therefore is not subject to income tax.
ACTION TIMELINE
2 EVENTS
JAN 20, 25
Introduced in House
INTROREFERRAL
JAN 20, 25
Referred to the House Committee on Ways and Means.
