U.S. Sen. Ted Cruz’s No Tax on Tips Act seeks to amend the Internal Revenue Code by exempting cash tips from federal income tax.
Now, U.S. Reps. Byron Donalds (R-FL) and Derrick Van Orden (R-WI) have introduced the companion legislation in the U.S. House of Representatives.
The No Tax on Tips Act—co-sponsored by U.S. Sens. Steve Daines (R-MT), Rick Scott (R-FL), and Kevin Cramer (R-ND)—would exempt “cash” tips, including “cash, credit and debit card charges, and checks,” from federal income tax. The legislation would allow taxpayers to claim a deduction for tips.
“Our legislation is more important than ever, as President Biden continues to push failed policies that exacerbate inflation and hurt working families,” Cruz said in a press release on Tuesday.
According to the IRS, tips include cash and noncash items of value. If an employee receives tips totaling more than $20 in one month, the tips are treated as income and are taxable.
The IRS states, “All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes and must be reported to the employer.”
Describing the legislation as “pro-worker” with industry support and the backing of the National Restaurant Association, Cruz sees the measure as a way for employees who receive tips to keep more of their earnings.
“This common-sense, pro-worker legislation allows millions of tipped workers—including bartenders, waiters, and beauty professionals—to keep more of their hard-earned paycheck,” Cruz said.
The proposed legislation comes at a time when former President Donald Trump, who wants to make tips nontaxable, has been encouraging voters to write “no tax on tips” on restaurant receipts. He has also signaled that he would prioritize additional tax cuts in a new administration.
In the meantime, Cruz has called on the House and Senate to “expeditiously pass this legislation.”
The legislation awaits further action by the House Ways and Means Committee.
