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A simple breakdown of the proposed bill and what it could unlock for businesses and workers, brought to you by Anchor Accounting.
The No Tax on Tips Act is a proposed federal bill aiming to provide meaningful tax relief to both tipped workers and their employers. The legislation passed the U.S. Senate with bipartisan support and is currently awaiting consideration in the House of Representatives.
If approved, it would introduce two key changes:
These changes would not alter how tips are paid or reported, but they would reward accurate tip reporting and expand financial incentives for employers who follow compliance protocols.
If you work in a tip-reliant industry, the “No Taxes on Tips” bill could reduce how much of your tip income is taxed by the federal government.
Under the proposed law, eligible tipped workers will be able to deduct up to $25,000 of reported tip income from their federal taxable wages each year.
To qualify:
If enacted, this bill could significantly increase take-home pay for millions of tipped workers without changing how tips are collected or distributed.
Currently, the FICA Tip Credit is only available to restaurants and other food service businesses. The No Tax on Tips Act proposes to expand access to this credit to include:
This credit allows eligible employers to recover part of the Social Security and Medicare taxes they pay on employee-reported tips. It's a dollar-for-dollar reduction in payroll tax liability and can apply retroactively for up to three years if eligible.
Although the bill has cleared the Senate, it still requires approval by the House and a signature from the President before it becomes law.
Once enacted, the U.S. Treasury will publish a detailed list of which occupations and industries qualify under the new rules. This guidance is expected within 90 days of passage, although timelines may vary.
In the meantime, eligible businesses in the food and beverage space can continue claiming the existing FICA Tip Credit with the support of Anchor Accounting.
Whether you currently qualify or are preparing for the law to pass, Anchor Accounting is here to help. Our full-service FICA Tip Credit Program offers:
We help restaurants and service-based businesses maximize the value of tip reporting without adding to your workload.
Tipped employees working in eligible service industries who earned less than $160,000 in the previous year may be able to deduct up to $25,000 in reported tip income from their federal taxable wages. To qualify, tips must be properly reported through payroll.
It’s worth noting that the Treasury Department will release an official list of approved tipped occupations within 90 days of the bill becoming law, so eligibility criteria may be updated once that guidance is issued.
The No Tax on Tips Act is still under review in the House. If approved, the U.S. Treasury will release additional guidance, including a list of qualifying tipped occupations, within 90 days.
The tip income deduction is designed to help individual employees lower their taxable income by allowing them to deduct up to $25,000 in reported tips. The FICA Tip Credit, on the other hand, is a benefit for employers. It lets eligible businesses recover a portion of the payroll taxes they’ve paid on those reported tips.
While the FICA Tip Credit currently applies only to food and beverage employers, the proposed bill would expand eligibility to include certain beauty and personal care businesses, such as salons, barbershops and spas, potentially unlocking new savings for employers across multiple service industries.
You may not be eligible under current or proposed rules. However, the full list of qualifying industries will be published by the Treasury within 90 days of the bill becoming law, so it’s worth checking back for updates.
If you're a restaurant or food service employer, you don’t need to wait. The FICA Tip Credit is already available under current tax law. You may be able to recover a portion of the payroll taxes you’ve paid on employee-reported tips, including for prior open tax years.
Anchor makes the process easy with no upfront costs. Our team handles everything from eligibility checks and IRS-compliant filings to audit protection and refund tracking. We’ll take care of the paperwork so you can focus on running your business, and get back the money you may already be entitled to.
