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NRA Update: “No Taxes on Tips” Act
Jun 21, 2024
On June 20, four U.S. Senators introduced the “No Taxes on Tips Act” to prevent federal income taxation on employee tips in any industry. While the proposal would eliminate the federal income tax for tips, these tips would still be subject to the federal payroll tax (“FICA”) paid by employees and employers to contribute to Social Security and Medicare. The FICA contribution ensures a tipped employee can demonstrate his or her total income as they build credit or access benefits, while ensuring restaurant employers continue access to the FICA 45B credit.
The legislation was introduced by Sen. Ted Cruz (R-TX) and cosponsored by Sens. Steve Daines (R-MT), Rick Scott (R-FL), and Kevin Cramer (R-ND). Former President Trump proposed this idea during a campaign event this month and said it would be a priority for his administration should he return to the White House in 2025. The current Senate Finance Committee chairman did not signal that he wanted to advance this bill in 2024.
The Association and the Texas Restaurant Association worked closely with Senator Cruz’s office to ensure that the restaurant workforce would be able to collect Social Security benefits and show income inclusive of earned tips. Other proposals offered in Congress to remove the federal income tax on tips may upend the federal tip credit model, endanger benefits for tipped employees, and cause further disruption to full-service restaurants.
In 2025, the Association will work closely with Congress on many tax priorities which clearly have a major impact to a restaurant operator’s ability to earn a profit, advance employees, and grow their business. The impact of this new legislation is less clear for restaurants and the broader economy, but we will remain engaged to support our industry’s model.
“Tipped employees are a critical part of the restaurant industry, and anything that strengthens their economic condition is a positive for them. The ‘No Tax on Tips Act’ would provide immediate tax relief for more than 2.2 million restaurant employees and their families, putting more money in their pockets at a time when we're all feeling the squeeze of higher prices. We thank Senator Ted Cruz and Senator Steve Daines for their leadership, and look forward to working with them on this and other common-sense tax proposals that will support restaurant vitality in every community in America.” -- Sean Kennedy, Executive Vice President of Public Affairs, National Restaurant Association
“The Texas Restaurant Association is grateful to Sen. Cruz for working with us to develop the ‘No Tax on Tips Act.’ Restaurant servers, bartenders, and other tip-earning employees give so much to the local businesses and communities they serve—delivering the essential service of food with hospitality that creates lasting memories. It’s wonderful to create an opportunity to give back to them by helping them keep more of their hard-earned tips that they can invest in their families and our local economy.” -- Emily Williams Knight, President and CEO, Texas Restaurant Association