As the pitch for exempting tips from federal income tax draws endorsements on the presidential campaign trail, two similar proposals in Congress face timing- and cost-related roadblocks to passage this year.
Legislation on exempting tips from tax has prompted renewed interest, but prospects for movement by year-end are unclear. The bills were proposed after former President Trump pitched the idea at a June 9 campaign rally. Vice President Kamala Harris, the Democratic presidential nominee, endorsed eliminating taxes on tips for service and hospitality workers and raising the minimum wage at an August 10 event.
The No Tax on Tips Act (S. 4621), introduced by Sen. Ted Cruz, R-Texas, would eliminate the federal income tax on cash tips through an above-the-line deduction, and legislation from Reps. Matt Gaetz, R-Fla., and Thomas Massie, R-Ky. — the Tax Free Tips Act of 2024 (H.R. 8785) — would exempt tips from both income and employment taxes. Neither proposal includes an income cap or limits on what industries would qualify for the exemption.
The proposal has drawn support from Rep. Steven Horsford, D-Nev. “I’m proud to stand with @Culinary226 to work towards eliminating subminimum wages & ensure no tax on tips. Nevada protects its workers & it’s time the nation does too,” he said in an August 12 post on the social platform X.
Horsford’s office didn’t reply to a request for comment by press time.
It’s unclear whether committees in either chamber will advance the bills in an election year with limited session days and a long list of other priorities, and none of the members introducing the legislation serve on taxwriting committees.
With a continuing resolution for fiscal 2025 appropriations, the fiscal 2025 National Defense Authorization Act, and the farm bill competing for action, there’s likely no room for movement on a “no tax on tips” bill this year, according to Andrew Lautz of the Bipartisan Policy Center.
“To me, this is being considered in the context of 2025. I don’t think it’s likely it gets serious consideration on the floor in the 2024 calendar year,” Lautz told Tax Notes. “There are going to be more urgent deadlines in the end-of-year session in Congress than addressing what’s an interesting campaign proposal that has now received bipartisan support but is not particularly urgent compared to these other things.”
Trump and Harris both announced their support for the proposal in Nevada, a key presidential swing state. Nevada has the highest concentration of waiters and waitresses by state in the country, according to the Bureau of Labor Statistics, and Harris’s proposal came after the largest union in Nevada — the Culinary Workers Union Local 226 — lobbied her to commit to the pledge and endorsed her August 9.
In August 14 comments Trump accused Harris of stealing his proposal, claiming Harris wouldn’t follow through on the idea if elected.
Representatives for Senate Finance Committee Chair Ron Wyden, D-Ore., and House Ways and Means Committee Chair Jason Smith, R-Mo., didn’t reply to a request for comment by press time on whether their panels would hold a hearing or markup on tax-exempt tips legislation this Congress. When Trump first voiced the idea, Wyden referred to it as a “bogus proposal,” while Smith has said he supports it.
The cost of the proposals could also create a challenge should an attempt be made to include the legislation in an end-of-year omnibus bill. Exempting tipped income from federal income and payroll taxes would cost $150 billion to $250 billion over 10 years, according to the Committee for a Responsible Federal Budget. The group also estimates that exempting tip income from federal income taxes and raising the minimum wage — as Harris proposed — would increase deficits by $100 billion to $200 billion over 10 years.
“I would think that a proposal like that would be cost-prohibitive in a year-end package option,” Lautz said.
That cost could be a hurdle in 2025 if the proposal is considered alongside the expiring provisions of the Tax Cuts and Jobs Act that are scheduled to sunset at the end of next year, according to Brendan Duke of the Center for American Progress.
“Congressional Democrats have identified offsets that can plausibly pay for their tax agenda next year, but there isn’t unlimited room for new ideas like this one. Congressional Republicans haven’t identified any plausible way to offset their tax cuts,” Duke said in an email. “This will be one of several ideas competing for scarce space in next year's [Joint Committee on Taxation] score."