When Eileen Scott first heard about the proposal to eliminate taxes on tips, her first reaction was: "That sounds like a great idea."

Scott is a cocktail server at Harrah's Las Vegas. She told Hotel Dive that tips are a significant part of her income, and on some days, tip earnings are quite substantial. But working as a tipped employee isn't easy—customer tipping habits fluctuate wildly, and the tips she actually takes home are often far less than customers think they are giving.

"Guests tip you because you provided good service, and they give that tip as a gift," she said. But guests don't realize that those tips ultimately have to be shared among bartenders, bar backs, and Uncle Sam (referring to the U.S. government).

Scott is among a group in the hospitality industry supporting the elimination of federal taxes on tips, a group that includes hotel employees, hotel associations, and hotel unions.

And that elimination could soon become a reality: the tax and spending reconciliation bill supported by President Donald Trump—dubbed "one big beautiful bill"—was passed by the House in May and has been sent to the Senate for consideration.

The House-passed version outlines budget priorities, including tax cuts, cuts to services like Medicaid, and increased funding for priorities such as border security that Trump campaigned on. The bill also includes a provision to eliminate federal taxes on tips. Before the bill reached the Senate, the Senate had already passed the "No Tax on Tips Act" introduced by Republican Senator Ted Cruz on May 20, which outlines similar legislation.

Although hospitality associations and hotel unions support eliminating the tip tax, the specific shape of the bill and its potential impact remain contentious.

A popular idea

The American Hotel & Lodging Association (AHLA) is one of the industry voices advocating for the elimination of federal taxes on tips.

"There are many roles in the hospitality industry that benefit from tips—adding up to 800,000 people," Rosanna Maietta, AHLA's president and CEO, told Hotel Dive. "That's a significant number, and it's important to let them take home more of what they earn every day."

Ahead of the 2024 presidential election, Trump and former Vice President Kamala Harris both pledged to eliminate taxes on tips. In January, after Trump took office, Maietta appeared on stage with the president at a rally in Las Vegas, where she called the "tip tax exemption" proposal a "critical step" in helping tipped workers "keep more of what they earn."

"Our particular focus is ensuring that this provision applies to all roles in the hospitality industry that benefit from tips, not just the traditional roles in restaurants."

— Rosanna Maietta, President and CEO of the American Hotel & Lodging Association

"I think there's broad support from both Democrats and Republicans because we're in an environment where tipping is prevalent," Maietta told Hotel Dive. According to a poll conducted by Newsweek last July, about 67% of Americans believe that tips received by service workers should not be taxed.

Recently, this support has translated into legislative action: the "No Tax on Tips Act," supported by AHLA, passed the Senate on May 23. The bill, introduced in the House in July by Florida Republican Representative Byron Donalds and reintroduced in the Senate by Cruz in January, includes a deduction of up to $25,000 against federal taxes on tips.

"This bipartisan legislation will put more money in the pockets of hundreds of thousands of tipped hotel employees, from housekeepers and bellmen to food and beverage staff and luggage attendants," Maietta said in a statement after the Senate passed the bill.

Meanwhile, other legislation to eliminate the tip tax is still moving forward. The provision in Trump's reconciliation bill is similar to Cruz's bill, requiring the Treasury Department to determine which occupations qualify for the exemption.

"The goal is to set some guardrails," Maietta said of Cruz's bill. "Our particular focus is ensuring that this provision applies to all roles in the hospitality industry that benefit from tips, not just the traditional roles in restaurants."

However, the provision in the reconciliation bill differs from the "No Tax on Tips Act" in that it has no deduction cap and is limited in duration.

"It's temporary," Anne Bushman, a partner in RSM's Washington national tax practice, said of the tip tax provision in the reconciliation bill. "It's retroactive to January 1, 2025, and is set to expire on December 31, 2028."

Experts told Hotel Dive that senators may revise the tip tax language in the reconciliation bill in the coming weeks, but the Senate's passage of Cruz's bill means the provision is likely to remain in the legislation.

"I think the Senate vote was a signal vote, and the more likely vehicle for tip tax exemption to become law is the reconciliation bill," Alex Muresianu, senior policy analyst at the Tax Foundation, told Hotel Dive.

According to The Washington Post, Republicans say they are aiming to get the bill through the Senate and onto Trump's desk by July 4.

Different paths

Although both Democrats and Republicans have expressed support for eliminating the tip tax, critics still exist.

For example, Nevada Democratic Representative Steven Horsford introduced his own bill last year—the "Tip Income Protection and Support Act"—which would not only eliminate the tip tax but also eliminate the subminimum wage for tipped workers.

Culinary Workers Union Local 226 and Bartenders Union Local 165—the Nevada branches of the national hospitality union Unite Here, collectively known as the "Culinary Union"—support Horsford's bill. Ted Pappageorge, the union's secretary-treasurer, has said that the rules for eliminating the tip tax "cannot stop there" and should also eliminate the $2.13 minimum wage that many servers receive.

Horsford's bill was referred to the House Ways and Means Committee in February but has not advanced since.

According to Muresianu, the bills currently under consideration may not benefit the lowest-income workers.

"A significant portion of tipped workers are part-time and earn below the standard deduction, so they don't pay federal income tax anyway, regardless of whether tips are included in their income."

— Alex Muresianu, Senior Policy Analyst at the Tax Foundation

"The lowest-income tipped workers actually benefit very little from tip tax exemption legislation," he noted. "A significant portion of tipped workers are part-time and already earn below the standard deduction, so they don't pay federal income tax anyway, regardless of whether total income includes tips."

Last summer, the Committee for a Responsible Federal Budget estimated that exempting all tip income from federal income and payroll taxes would reduce federal revenue by $150 billion to $250 billion over 10 years, "and the revenue loss could be significantly larger once behavioral effects are included," such as employees reclassifying ordinary income as tip income as much as possible to maximize tax benefits.

"The magnitude of these behavioral effects is uncertain and will depend heavily on the regulatory guardrails that accompany the policy," the committee said.

However, the potential legislation currently under consideration in Congress appears to address some of the critics' concerns.

"Lawmakers do seem to be aware that there could be abuse risks," Bushman said. "I say that because both (Cruz's bill and the reconciliation bill) stipulate that it must be a business where tipping is customary."

"The devil is in the details," Maietta told Hotel Dive, adding that AHLA has worked closely with Senator Cruz's office on this.

"How do you ensure that these roles don't include managers who are not in tipped positions?" she added. "How you write the rules really matters."

Bushman added that if new legislation on tip taxes passes, some businesses may need to scramble to adjust.

"I think it's going to be an urgent issue for employers and payroll companies," she said. "Saying 'Oh, you put tips on the W-2 form, and then they get a deduction' sounds simple. But now everything is electronic and runs through software, so there will be a lot of nuances."

The changing tip economy

The debate over eliminating the tip tax comes amid broad changes in tipping culture and the hospitality workforce.

First, fewer hotel and resort guests are tipping with cash. "People don't carry cash, and I'm one of them," said Scott, the cocktail server at Harrah's. "I can pay by card, and that's the trend now."

Scott also said that added fees have dampened guests' willingness to tip.

"You can't expect guests to take care of you because they really think, 'Why should we take care of you? We've already paid for the hotel, we've already paid the resort fee,'" she said. "Hotels take so much from guests that they feel robbed, so we become the ones who are overlooked."

Although tipping is becoming more common across industries, about 60% of respondents in a national consumer survey by Popmenu said they are tired of tipping at various establishments, as reported by Restaurant Dive in November 2024.

Digital tipping solutions allow hotel guests to tip without cash, Scott Strickland, former CIO of Wyndham Hotels & Resorts, told Hotel Dive in 2023. Marriott International and InterContinental Hotels Group have also approved several digital tipping vendors for use at their hotels.

However, although wages at full-service restaurants have grown steadily since the pandemic, tips as a share of wages have declined, according to ADP Research data.

Meanwhile, hotels are paying higher wages than ever but still struggling to fill positions, according to AHLA research.

When asked whether eliminating the tip tax could make it easier for hotel employers to hire, Maietta said: "I firmly believe we offer competitive wages across the country."

"Could this (tip tax exemption legislation) be an additional benefit? Possibly," she added. "Is it a reason to keep people in the hospitality industry? Hard to say."

Meanwhile, AHLA praised the House's passage of the reconciliation bill, which also includes other tax provisions the association believes are beneficial to hotels, such as making the small business deduction permanent and increasing the qualified business income deduction.

"We urge the U.S. Senate to quickly pass this legislation and send it to President Trump's desk," Maietta said in a statement.