The Working for Tips Tax Relief Act of 2025
Sponsored By: Representative Davis (NC)
Introduced
Summary
Creates a time-limited federal tax exclusion so eligible service workers can exclude reported cash tips from gross income. The exclusion is capped and phased out by income and is tied to a narrow list of occupations and reporting rules.
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Bill Overview
Analyzed Economic Effects
6 provisions identified: 3 benefits, 0 costs, 3 mixed.
New tip tax break for workers
This bill would let tipped workers deduct reported cash tips from income. You would be able to deduct up to $35,000 of qualified tips per year. The deduction would phase out by $50 for every $500 of modified adjusted gross income between $50,000 and $75,000 (or $100,000 to $150,000 for married joint filers). You would need to report tips on specified statements or on Form 4137 and include your Social Security number to claim it. The bill would also allow the deduction if you do not itemize and treat amounts claimed as part of the qualified business income calculation.
Timing, indexing, and reporting rules
The bill would require the Treasury to review national and regional living wage estimates each year and allow adjustments to the tip deduction or its income thresholds. It would also require biennial reports to Congress starting July 1, 2027 on who uses the deduction and effects on wages. The bill includes timing rules: one provision sets initial actions to begin for tax years after December 31, 2025 and to expire after December 31, 2028, while other amendments are written to apply to tax years beginning after December 31, 2024 and ending December 31, 2026.
SSN omission treated as clerical
The bill would tell the IRS to treat leaving off the required Social Security number for the tip deduction as a math or clerical error. If enacted, that would reduce some procedural risk when a taxpayer claims the deduction but does not change the tax amount itself.
Easier reporting for old cash tips
For cash tips required to be reported before January 1, 2026, the bill would let payors approximate a separate accounting of cash tips using any reasonable method the Treasury prescribes. This would ease reporting and paperwork for employers and other payors during the transition to the new rules.
Payroll withholding changes for tips
The bill would require the Treasury to change payroll withholding rules so withholding reflects the new tip deduction for tax years after December 31, 2025. This could change how much tax employers withhold from paychecks and may require payroll-system updates. The provision directs rulemaking but does not set exact withholding amounts itself.
Pilot study after temporary rules
The bill would require the Treasury to run a pilot program when the temporary tip rules expire. The pilot would study whether making tipped-wage tax exemptions permanent is beneficial. The pilot itself would not change taxes but would inform future policy decisions.
Sponsors & CoSponsors
Sponsor
Davis (NC)
NC • D
Cosponsors
There are no cosponsors for this bill.
Roll Call Votes
No roll call votes available for this bill.
View on Congress.gov