Sponsors (31)
The bill raises guaranteed wages and strengthens tip protections for low-income tipped workers and offers a targeted tax deduction for many, at the cost of higher labor and compliance costs (and legal risk) for employers and uneven tax coverage for some tipped workers.
Tipped workers (servers, bartenders, cosmetologists, etc.) would be paid at least the full statutory minimum wage instead of a reduced cash/tipped wage, increasing base earnings for low-income tipped employees.
Tipped employees keep their tips (with lawful tip-pooling limited to regular tip-earning staff) and employers are made liable for tips unlawfully taken, strengthening workers' rights and remedies against wage theft.
Many tipped workers can claim an above-the-line deduction for reported cash tips (including non-itemizers), lowering taxable income and increasing take-home pay; the deduction is protected from the 2% miscellaneous floor and overall itemized deduction limits.
Employers (especially small businesses that rely on tipping) will face higher direct labor costs, which may lead to reduced staffing or hours for tipped roles and/or higher consumer prices.
Businesses face increased litigation exposure and larger damages liability if they unlawfully use or keep tips, raising legal risk and potential payouts for employers.
Employers and payroll administrators must update withholding procedures and recordkeeping to implement the new wage and tax rules, creating administrative costs and complexity for small businesses.
Based on analysis of 3 sections of legislative text.
Removes the federal tipped minimum-wage exception, strengthens employer tip-return liability, and creates a new above-the-line deduction for reported cash tips (AGI-limited).
Official title: To amend the Fair Labor Standards Act of 1938 to eliminate the separate minimum wage for tipped employees, and for other purposes.
Introduced February 13, 2025 by Steven Horsford · Last progress February 13, 2025
Eliminates the federal special lower cash wage for tipped workers so employers must pay the full statutory minimum wage to employees who receive tips, preserves employee retention of tips (while allowing tip-pooling among staff who customarily receive tips), and strengthens employer liability for unlawfully keeping tips. It also creates a new above-the-line individual income tax deduction for qualified cash tips (with an income phaseout) to offset some tax burden on tipped workers, effective for tax years beginning after December 31, 2025.