The Working for Tips Tax Relief Act of 2025
Summary
The Working for Tips Tax Relief Act of 2025 aims to amend the Internal Revenue Code of 1986 by providing a permanent exclusion from gross income for certain reported tips for workers in eligible service sectors. This is intended to support low- and moderate-income earners. The bill introduces a new section, 139K, to the Internal Revenue Code, allowing a deduction for qualified tips up to $35,000, subject to income limitations.
Expected Effects
The Act will likely reduce the tax burden on tipped workers, potentially increasing their disposable income. It also mandates the Secretary of the Treasury to publish a list of occupations that traditionally receive tips and to conduct a pilot program to assess the benefits of permanently extending the tax exemption. The bill also includes a sunset clause, expiring at the end of 2028, with a pilot program to evaluate permanent extension.
Potential Benefits
- Increased disposable income for tipped workers, particularly those in low- and moderate-income brackets.
- Simplification of tax filing for eligible workers by allowing a deduction for reported tips.
- Potential for increased workforce participation in service sectors due to improved financial incentives.
- Biennial reports to Congress will provide data-driven insights into the program's effectiveness and areas for improvement.
- The pilot program could lead to a permanent extension of the tax relief, providing long-term benefits to tipped workers.
Potential Disadvantages
- The exclusion is capped at $35,000 and phased out for individuals with modified adjusted gross income between $50,000 and $75,000 (or $100,000 and $150,000 for joint returns), limiting its benefit for some.
- The sunset clause means the tax relief is temporary, creating uncertainty for workers and businesses.
- The definition of 'qualified tips' may be subject to interpretation and could exclude some types of tips.
- Increased complexity for the IRS in administering and enforcing the new regulations.
- Potential for abuse through misclassification of income as qualified tips.
Constitutional Alignment
The bill aligns with the general welfare clause of the Constitution (Preamble), as it aims to support low- and moderate-income earners. Article I, Section 8 grants Congress the power to lay and collect taxes, duties, imposts, and excises to pay the debts and provide for the common defense and general welfare of the United States. This bill falls under Congress's power to modify the tax code. The bill does not appear to infringe upon any specific constitutional rights or protections.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).