In a powerful shift favoring service workers, the federal No Tax on Tips Details policy is rapidly gaining momentum after President Biden’s endorsement during a Las Vegas speech earlier this month. The initiative would exempt tipped income from federal income tax, giving financial relief to millions of restaurant servers, bartenders, hotel staff, and others relying on gratuities.
What Is the “No Tax on Tips” Plan?
President Biden publicly announced support for eliminating federal income tax on tips, aligning with a proposal made by Donald Trump in June. Though once seen as campaign rhetoric, the idea now has legitimate policy traction. Biden called it “a commonsense move to reward hard work in our service sector.”
The U.S. Treasury and IRS are now collaborating on implementation plans. Legislative action is expected in early fall, with proposed rollout for tax year 2025.
Key Points Summary
- Federal income tax on tips to be removed starting 2025.
- Supported by both Biden and Trump.
- IRS developing new guidelines for reporting tip income.
- Over 5 million U.S. workers expected to benefit.
- No retroactive tax refunds; change applies moving forward only.
Where the Policy Stands Now
On July 25, IRS officials confirmed internal preparations for revising tax forms and compliance procedures. The biggest challenge will be decoupling tips from standard wage income in systems like the W-2. The Treasury Department stated that no additional employer-side taxes would be introduced.
Draft legislation is being prepared and may be presented to Congress as early as September 3, 2025. Treasury Secretary Janet Yellen noted the administration is “committed to a simple, fair rollout.”
Read also-No Tax on Tips Details: Everything You Need to Know About the New 2025 Law
Areas Under Review:
- Verification of actual tips earned.
- Digital vs. cash tips tracking.
- New guidance for POS (point-of-sale) systems.
- Employer education programs for reporting compliance.
What Workers and Employers Can Expect
For workers, the change will mean more take-home pay with zero tax withheld from tips. For employers, minor adjustments to payroll software will be necessary, but overall compliance should remain manageable.
According to the National Federation of Independent Business (NFIB), most small businesses welcome the change but are calling for clear, early guidance to avoid confusion during tax season.
Benefits for Tipped Workers Include:
- Higher net income from each paycheck.
- No federal taxes due on declared tips.
- Relief from tip-tracking anxiety at tax time.
Employer Checklist:
- Update payroll systems before Q1 2026.
- Train staff on reporting standards.
- Monitor IRS updates for formal compliance steps.
Public Sentiment and Political Reactions
Support for the No Tax on Tips Details policy is strong across political lines. A new July 2025 Pew Research poll shows 74% of Americans favor the exemption, including a majority of voters under age 40—many of whom work in tip-based industries.
Notable Quotes:
- President Biden: “This is about fairness and dignity for working Americans.”
- Donald Trump: “Glad they took my advice—tips should go straight into workers’ pockets.”
- Rep. Kevin McCarthy: “We’ll support it if the numbers add up responsibly.”
The bipartisan support indicates smooth passage through Congress is likely, especially with the 2026 election cycle looming.
Conclusion
The No Tax on Tips Details proposal is no longer just a campaign promise—it’s shaping into a policy reality with widespread support. With IRS action underway and lawmakers preparing to formalize the exemption, service industry workers can expect meaningful changes in their paychecks starting next year.
Stay informed as the policy progresses and share your thoughts below—how will this impact your income or business?