Tax relief for tipped workers

Summary#

H.R. 6295, the Working for Tips Tax Relief Act of 2025, would amend the Internal Revenue Code of 1986. Its stated goal is to support low- and moderate-income earners, but its main change is a time-limited federal income-tax deduction for some reported tips—not a permanent exclusion as the title suggests.

  • Eligible taxpayers could deduct qualifying cash tips, up to $35,000 a year, subject to income limits and a phase-down.
  • The deduction would cover tips in occupations that regularly received tips by December 31, 2024, and would exclude some service businesses. Treasury must publish a list of eligible occupations within 90 days of enactment.
  • Tips must meet rules about being voluntary, not negotiated, and determined by the person paying. Cash and charged tips, including employee tips shared through a tip-sharing arrangement, could count.
  • Treasury must change withholding procedures, report to Congress on the deduction, and start a pilot program after the provision expires.
  • The bill’s dates and cross-references conflict: it inserts a provision numbered 139K but later refers to section 224, and it gives different effective and end dates. The bill is introduced and has not become law.

What it means for you#

  • Workers who receive tips: If your occupation and tips qualify, you could claim a deduction on your federal tax return. You would need a Social Security number. The deduction is not available to married taxpayers who do not file jointly.
  • Workers with higher incomes: The deduction phases down as modified adjusted gross income rises from $50,000 to $75,000, or from $100,000 to $150,000 for joint filers. It would not apply above those limits.
  • Self-employed people receiving tips: The deduction could not exceed the income from that business after other business deductions.
  • Employers and other payors: Treasury would change withholding procedures. The bill also allows a reasonable method for separately accounting for tips reported for periods before January 1, 2026.
  • Other taxpayers: The bill does not directly change Social Security or Medicare payroll taxes in the text provided.

Money#

No cost estimate is included in the available material.

  • A deduction would reduce taxable income for eligible filers, but the amount of any tax reduction would depend on their circumstances.
  • Treasury must publish an occupation list, adjust withholding procedures, prepare reports, review wage estimates annually, and run a pilot program. The bill gives no cost or staffing estimate.
  • Treasury may adjust the deduction or eligibility thresholds based on living-wage estimates; it does not have to do so.

What is unclear#

  • The bill gives conflicting dates: one part applies the deduction to tax years after 2025 and describes an expiry tied to 2028; another says the amendments apply to tax years beginning after 2024 and ending in 2026.
  • It is unclear how the new section numbered 139K fits with later references to section 224. The supplied materials do not include the Internal Revenue Code or the law cited in the bill, so those references cannot be checked against current law.
  • The bill leaves some details to Treasury, including the occupation list and other requirements to prevent abuse.
  • It does not explain how Treasury would run the pilot program or what happens after it ends.

Case for#

  • The bill appears intended to lower federal income taxes for some workers who receive tips, with income limits aimed at restricting the benefit to lower- and moderate-income filers.
  • A deduction could be claimed by taxpayers who do not itemize, so itemizing deductions would not be required.
  • The cap, income phase-down, and rules for qualifying tips could limit the deduction to specified workers and amounts.

Case against#

  • The inconsistent dates and section references make it unclear when the deduction would apply and how it would fit into the tax code.
  • The bill excludes tips connected to some service businesses and requires married taxpayers to file jointly. The materials do not explain why those limits were chosen.
  • Treasury has duties to issue a list, change withholding, report, and run a pilot, but the bill provides no cost estimate or detailed process for the pilot.
  • The bill’s title and stated aim suggest a permanent exclusion, while the operative text describes a deduction with an expiry.