The No Tax on Tips Act passed the Senate with broad bipartisan support, proposing to eliminate federal income tax on cash tips received by workers in traditionally tipped occupations.
For servers, bartenders, and other tipped restaurant workers, the practical impact is straightforward: tips would no longer be included in federal taxable income. The current requirement to report all tips — cash and charged — as income would be modified to exclude them from tax calculations.
For restaurant owners, the implications are more nuanced. FICA taxes (Social Security and Medicare) on tips would still apply unless further legislation addresses that. The FICA Tip Credit, which currently allows employers to claim a credit for their share of FICA on tips above minimum wage, would need to be re-evaluated.
One concern among tax professionals: defining which workers qualify as being in 'traditionally tipped occupations.' The legislation's language matters significantly here, and the IRS would need to issue guidance on how the exemption applies.
Until the legislation passes the House and is signed into law, tip reporting requirements remain unchanged. Restaurant owners should not alter their current payroll or tip reporting procedures based on this development alone.
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