S.129 - No Tax on Tips Act (119th Congress)
Summary
S.129, the "No Tax on Tips Act," proposes amending the Internal Revenue Code of 1986 to eliminate income tax on qualified tips by allowing a deduction for individual taxpayers. The deduction is capped at $25,000 and applies to cash tips received in occupations that traditionally received tips before December 31, 2023. The bill also extends the employer social security tax credit to beauty service establishments and adjusts the minimum wage calculation for the tip credit.
Expected Effects
If enacted, this bill would reduce the tax burden on tipped employees, potentially increasing their disposable income. It would also provide a tax credit to beauty service businesses, incentivizing job creation and business growth in that sector. The Secretary of the Treasury would need to publish a list of occupations that traditionally receive tips.
Potential Benefits
- Increased disposable income for tipped employees due to reduced tax burden.
- Potential economic stimulus as tipped employees spend their increased income.
- Tax credit for beauty service establishments, potentially leading to job creation and business expansion.
- Simplification of tax filing for tipped employees who can deduct their tips directly.
- Addresses concerns about the fairness of taxing income that is often considered supplemental.
Potential Disadvantages
- Potential revenue loss for the federal government due to the deduction for qualified tips.
- Complexity in defining "qualified tips" and eligible occupations, potentially leading to disputes.
- The $25,000 cap may disproportionately benefit higher-earning tipped employees.
- May incentivize underreporting of tips to stay within the deduction limit.
- Potential for increased tax avoidance if the definition of "beauty services" is too broad.
Most Disadvantaged Areas:
Constitutional Alignment
The bill aligns with the general welfare clause of the Constitution (Preamble) by aiming to improve the financial well-being of tipped employees. The power to tax and regulate income is granted to Congress under Article I, Section 8, Clause 1. The bill's provisions regarding deductions and tax credits fall within this constitutional authority. The bill does not appear to infringe upon any specific individual rights or liberties protected by the Constitution or its amendments.
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).