H.R.482 - No Tax on Tips Act (119th Congress)
Summary
H.R.482, the "No Tax on Tips Act," aims to amend the Internal Revenue Code of 1986 by eliminating income tax on qualified tips through a deduction for all individual taxpayers. The bill also extends the employer social security tax credit to beauty service establishments and adjusts the minimum wage calculation for the tip credit. The bill was introduced in the House of Representatives on January 16, 2025, and referred to the Committee on Ways and Means.
Expected Effects
If enacted, this bill would reduce the tax burden on individuals who receive tips, potentially increasing their disposable income. It would also provide a tax credit to employers in the beauty service industry, incentivizing job creation and business growth. The change in minimum wage calculation could affect employer costs and employee wages.
Potential Benefits
- Increased disposable income for tipped employees: Eliminating taxes on tips, up to $25,000, directly benefits those who rely on tip income.
- Tax relief for beauty service businesses: Extending the employer social security tax credit can help these businesses grow and hire more employees.
- Simplification of tax code: By creating a specific deduction for qualified tips, the bill aims to simplify tax filing for individuals in tipped occupations.
- Potential economic stimulus: Increased disposable income could lead to increased spending, boosting economic activity.
- Support for traditionally tipped occupations: The bill acknowledges and supports workers in occupations where tipping is customary.
Potential Disadvantages
- Potential revenue loss for the government: Eliminating taxes on tips could reduce federal tax revenue, potentially increasing the national debt.
- Complexity in defining "qualified tips": The definition of qualified tips and the list of eligible occupations may create administrative challenges and potential for disputes.
- Disproportionate benefit to higher-income earners: Those who receive larger tips will benefit more from the deduction, potentially exacerbating income inequality.
- Potential for abuse: The deduction could be subject to abuse if not properly monitored and enforced.
- Impact on Social Security contributions: Reduced reported income from tips could affect future Social Security benefits for some individuals.
Most Disadvantaged Areas:
Constitutional Alignment
The bill aligns with the general welfare clause of the Constitution (Preamble) by attempting to improve the financial well-being of tipped employees and support small businesses. 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 uses that power to create a tax deduction.
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).