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This bill provides targeted tax relief and clearer rules for tipped workers and employers but increases employer compliance burdens, imposes SSN-based eligibility constraints, and is temporary—creating uncertainty about whether the relief will persist.
Tipped workers (servers, bartenders, drivers, etc.) — especially low- and middle-income taxpayers — can exclude up to $35,000 in reported cash tips from taxable income and non-itemizers can claim the tip deduction when using the standard deduction, lowering federal income tax owed.
Federal policymakers and the public will get more information because the Treasury must review annually and report to Congress biennially on program use, workforce participation, and wage equity, improving oversight and enabling data-driven adjustments.
Clearer statutory definitions and reporting rules (occupation lists, withholding adjustments, SSN requirement) make administration and compliance more predictable for employers, payors, and workers.
Small businesses and other payors must change reporting, withholding, and accounting practices, increasing compliance complexity and administrative costs.
Taxpayers must provide Social Security numbers to claim the deduction, which risks denial of the benefit for immigrants, workers without SSNs, or taxpayers with SSN mismatches.
The deduction is temporary (sunsets for taxable years beginning on or after Dec 31, 2028), creating uncertainty for tipped workers and businesses about the long-term tax treatment of tips.
Based on analysis of 2 sections of legislative text.
Excludes up to $35,000 of reported cash tips from taxable income for eligible tipped workers, with income-based phaseouts and a limited multi-year window.
Introduced November 25, 2025 by Don Davis · Last progress November 25, 2025
Creates a temporary tax exclusion that allows eligible tipped workers to exclude up to $35,000 of reported cash tips from gross income, with income-based phaseouts and eligibility limits. The exclusion applies to tips reported under specified IRS reporting rules and Form 4137, takes effect for tax years beginning after December 31, 2025, and sunsets after the 2028 tax year. Also revises rules defining which tips qualify for the deduction and directs the Treasury to annually review living-wage thresholds (with authority to adjust them) and to send biennial reports to Congress on program use, effects on workforce participation and wage equity, and recommendations for improvements.