The Working for Tips Tax Relief Act of 2025

Bill Number

H.R. 6295

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-11-25: Referred to the House Committee on Ways and Means.

Last Updated

2026-01-13T16:00:07Z

AI-Generated Summary

Purpose

The Working for Tips Tax Relief Act of 2025 aims to provide tax relief to workers in service industries who rely on tips by allowing a deduction for certain reported tips from their taxable income. This is intended to support low- and moderate-income earners by reducing their tax burden on tip income, encouraging accurate reporting of tips, and promoting wage equity. Although the bill's title references a "permanent" exclusion, the provisions are temporary with a potential path to extension via evaluation and a pilot program.

Key Provisions

• Deduction for Qualified Tips: Workers can deduct up to $35,000 in qualified tips from their gross income each year. Qualified tips are cash tips (including charged tips and those from tip-sharing) received voluntarily by customers in occupations that traditionally received tips as of December 31, 2024 (e.g., servers, bartenders). The tips must be reported on specific IRS forms or statements.
• Income Limits and Phase-Out: The deduction phases out for higher earners. It reduces by $50 for every $500 of modified adjusted gross income (AGI) above $50,000 for single filers ($100,000 for joint returns) and is fully unavailable above $75,000 ($150,000 for joint returns). Modified AGI includes certain foreign income exclusions.
• Eligibility Requirements:
• Applies only to tips in non-specified service trades or businesses (e.g., excludes fields like health, law, consulting, or performing arts, as defined under existing tax rules for qualified business income).
• Requires a valid Social Security Number (SSN) on the tax return; married individuals must file jointly.
• For self-employed individuals, the deduction applies only if business income (including tips) exceeds allowable deductions (excluding this tip deduction).
• Duration and Oversight:
• Effective for tax years beginning after December 31, 2025, and expiring for the tax year beginning December 31, 2028 (note: some sections reference a 2024 start and 2026 end, possibly indicating a drafting inconsistency).
• The IRS Secretary must annually review and potentially adjust limits based on national and regional living wage estimates.
• Biennial reports to Congress starting July 1, 2027, evaluating usage by sector and income, impacts on workforce participation, and recommendations for improvements.
• Post-expiration pilot program to study permanent extension.
• Administrative Rules:
• The IRS must publish a list of eligible occupations within 90 days of enactment.
• Updates to withholding procedures for employers to account for the deduction.
• Transition rules allow reasonable approximations for reporting pre-2026 tips.
• Omission of SSN is treated as a math or clerical error, allowing quicker IRS corrections.
• Prevents tips from qualifying for the separate qualified business income deduction and includes rules to stop reclassifying other income as tips to abuse the deduction.

Significant Changes to Existing Law

• New Tax Deduction: Adds Section 139K to the Internal Revenue Code (IRC), creating a specific above-the-line deduction (available even to non-itemizers) for reported tips, which were previously fully taxable as income.
• Reporting and Compliance: Expands IRS reporting requirements under sections like 6041 and 6051 to include tip details, while easing transitions for past reporting. Amends withholding rules under Section 3402 to reflect the deduction.
• Exclusions and Limits: Introduces income-based phase-outs and occupation-specific eligibility not previously tied to tips. Excludes these tips from the qualified business income deduction under Section 199A to avoid double benefits.
• Enforcement: Treats SSN omissions as correctable errors under Section 6213, streamlining IRS audits.

Potential Impacts

• On Citizens: Low- and moderate-income tipped workers (e.g., in restaurants, hospitality) could see reduced federal income tax liability, increasing take-home pay and potentially boosting workforce participation in tip-reliant jobs. Higher earners or those in excluded professions gain no benefit. Overall, it may encourage better tip reporting to the IRS.
• On Government Agencies: The IRS faces increased administrative burdens for publishing lists, adjusting withholding, reviewing wages annually, and producing reports. This could lead to short-term revenue loss (estimated in billions, though not specified) from the deduction, offset by improved compliance.
• On International Relations: Minimal direct impact, though modified AGI calculations include certain foreign income exclusions, potentially affecting expatriates or international workers in eligible U.S. roles.
• Broader Economic Effects: May promote wage equity by effectively raising net income for service workers without mandating minimum wage hikes, but temporary nature limits long-term planning.

Main Stakeholders Affected

• Tipped Workers: Primary beneficiaries, especially low-wage earners in service sectors like food service, hotels, and transportation (millions affected, per traditional tip occupations).
• Employers in Service Industries: Must update payroll and reporting systems for tip tracking and withholding; benefit indirectly from happier, retained staff.
• IRS and Treasury Department: Responsible for implementation, oversight, and reporting; handles increased compliance and potential revenue adjustments.
• Congress and Taxpayers: Congress receives evaluations for future policy; general taxpayers may see indirect costs via reduced federal revenue funding public programs.
• Excluded Groups: Professionals in specified service trades (e.g., doctors, lawyers) or high-income earners receive no relief.

Notable Legal, Constitutional, or Political Implications

• Legal: Strengthens tax code equity by targeting a regressive aspect of tip taxation (tips often underreported and disproportionately burden low earners). Includes anti-abuse regulations to prevent income shifting, ensuring compliance with IRC principles. The temporary sunset and pilot program allow for data-driven permanence, avoiding rushed permanent changes.
• Constitutional: No apparent issues; falls under Congress's broad taxing and spending powers (Article I, Section 8). SSN requirement aligns with existing privacy and verification precedents.
• Political: Addresses populist concerns over "no tax on tips" rhetoric, appealing to service workers and moderate-income voters. Temporary status invites partisan debate on extension, with reports providing neutral grounds for evaluation. Potential revenue impact could fuel budget negotiations, especially amid efforts to simplify the tax code.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Davis, Donald G. [D-NC-1]

Recent Actions

• 2025-11-25: Referred to the House Committee on Ways and Means.
• 2025-11-25: Introduced in House
• 2025-11-25: Introduced in House

Bill Versions

• The Working for Tips Tax Relief Act of 2025 — issued 2025-11-25 — PDF (8 pages)