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Understanding the Implications of the 'No Tax on Tips Act' for Employers

ARTICLE | June 03, 2025

Authored by Schlenner Wenner & Co


As an integral component of the service industry, tips have long contributed to the income of workers within sectors such as hospitality and restaurants. However, the taxation of these tips is often a source of contention, and current legislative efforts aim to shift the status quo. The No Tax on Tips Act, recently passed unanimously by the Senate, proposes tax deductions on cash tips for workers. If approved, this legislation could meaningfully impact employers within the service industry.

For employers, the passage of the No Tax on Tips Act could bring about several changes. Firstly, employers may see a reduction in their payroll tax responsibilities. The bill expands a tax credit for certain businesses, allowing them to claim credits for payroll taxes paid on tips, similar to current practices in the restaurant industry. This could potentially result in significant cost savings for businesses that employ a substantial number of tipped workers.

However, the Act also necessitates continued diligence and transparency in tip reporting. Employers would still be required to accurately track and report the cash tips received by their employees for taxation purposes. This ensures the correct application of the proposed tax deductions and maintains compliance with tax laws.

The No Tax on Tips Act also brings potential implications for employee recruitment and retention. With tipped employees potentially taking home more of their earnings, roles within the service industry may become more attractive. This could aid in addressing labor shortages and high turnover rates prevalent in these industries.

While the No Tax on Tips Act could bring about positive changes for employers in the service industry, it's crucial for businesses to stay informed about the progress of this legislation. Understanding its nuances can ensure employers are prepared to navigate the potential changes in their payroll processes and overall business operations.

This bill now heads to the House for a vote.

Please contact any of our offices if there are further questions regarding the possible passing of the No Tax on Tips Act.  

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