Sponsor
Don Davis
Representative · D-NC
Representative · D-NC
The bill gives meaningful, near-term tax relief to many tipped workers and improves reporting clarity, but it imposes new compliance burdens, excludes higher earners, requires SSNs (potentially leaving some people out), and expires after 2028, creating future uncertainty.
Tipped workers (especially low- and middle-income earners) can exclude up to $35,000 in reported cash tips from taxable income and non-itemizers can claim this benefit when taking the standard deduction, lowering federal income tax owed for many in tipping occupations.
Requires annual Treasury review and biennial reporting to Congress plus clearer definitions and reporting rules (occupations list, withholding adjustments, SSN requirement), which should improve oversight, transparency, and administrative clarity for employers and workers over time.
The exclusion is temporary (sunsets for tax years beginning on or after Dec 31, 2028), creating uncertainty for tipped workers and employers about the long-term tax treatment of tips.
Employers and payors face added complexity and compliance costs to adjust reporting, withholding, and possibly separate accounting for cash tips, increasing administrative burden for small businesses and payroll systems.
Claimants must provide Social Security numbers to use the deduction, which could deny or complicate access for workers without SSNs or with mismatches (including some immigrants and mixed-status households).
Based on analysis of 2 sections of legislative text.
Temporarily excludes up to $35,000 of qualifying reported cash tips from taxable income, with income-based phaseouts and a sunset after a few years.
Official title: To amend the Internal Revenue Code of 1986 to permanently exclude from gross income certain reported tips for workers in eligible service sectors, to better support low- and moderate-income earners, and for other purposes.
Introduced November 25, 2025 by Don Davis · Last progress November 25, 2025
Provides a temporary tax exclusion for certain reported cash tips so many tipped workers keep more of their earnings. It excludes up to $35,000 of qualifying reported tips from gross income for tax years after 2025, phases out benefits for higher earners, and sunsets after a short period; it also requires Treasury reporting and reviews of living-wage thresholds. Defines which tips qualify, updates related Internal Revenue Code rules about tip reporting and deductions, requires taxpayers to include Social Security numbers for reporting, and directs Treasury to monitor and report on who uses the exclusion and its effects on wages and labor participation.