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Why are we interrupting your regularly scheduled Food Runner programming? Because something big just passed in the Senate—and it could reshape the way tips are taxed across the hospitality industry.

On May 20, 2025, the Senate unanimously approved the No Tax on Tips Act, a bipartisan bill that would allow tipped workers to deduct up to $25,000 of cash tips from their federal income taxes starting in 2026.

It’s the first major step in what could become a massive shift in take-home pay for millions of restaurant workers—and a new reality for operators when it comes to payroll, compliance, and technology.

EVERYTHING YOU NEED TO KNOW

🧾 The Senate bill in plain English

If passed into law, the No Tax on Tips Act would:

• Allow tipped employees to deduct up to $25,000 in cash tips from their federal taxable income
• Require that those tips are reported to the employer for payroll tax purposes
• Apply only to employees making under $160,000 annually
• Keep tips subject to payroll taxes like Medicare and Social Security
• Expand the employer-side tip credit (45B) to industries beyond restaurants—like salons and spas

🏛️ What comes next?

The bill now heads to the House of Representatives, where it exists in two forms:

1. As part of a broader (and politically divisive) budget bill
2. As a standalone version, matching the Senate language

To become law, the House and Senate must agree to pass the same version of the bill—and that won’t happen overnight. Expect more debate in the coming months, because right now they’re not pitched as the same.

🔍 What you should be aware of

The bill hasn’t passed into law yet—but 2026 is just a few months away, and you should start assessing how this might impact your workflows. Here’s what to consider:

✅ 1. Tech check

If this passes, your systems will need to:

• Track cash tips clearly and accurately
• Flag when employees hit the $160,000 income threshold
• Report tip income in ways that align with IRS guidance (once finalized)

You may also want to revisit how you prompt for and record tips—and whether you’re ready to support tighter documentation and audit trails. 

✅ 2. Talk to your payroll provider

Ensure your provider understands the difference between income tax deductions and payroll tax obligations, and monitors federal guidance closely. 

With 7shifts, your systems are already a step ahead—tips and pay products evolve with new policies so you’re not scrambling when it’s go-time.

✅ 3. Don’t assume this is optional

If passed, this will affect W-2 filings, year-end reporting, and employee onboarding processes. Getting ahead now could save you stress later.

WHAT THE INDUSTRY’S SAYING

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