The bill did not pass Congress

The No Tax on Tips Act and related proposals to eliminate federal income tax on tips and overtime pay have not become law. Several versions of this bill were introduced in Congress over multiple years, but none advanced far enough to reach a final vote in both the House and Senate.

The most recent significant push came in 2024, when the proposal gained attention during the presidential campaign. Despite public discussion and some legislative activity, the bill did not pass before Congress adjourned. As of now, tips and overtime remain subject to federal income tax, Social Security tax, and Medicare tax like regular wages.

Key Takeaways

  • No version of the No Tax on Tips Act has passed Congress, so tips and overtime are still taxed as ordinary income.
  • The bill was introduced multiple times but did not advance to a final vote in both chambers.
  • If you receive tips or overtime pay, you currently owe federal income tax on those earnings.
  • Tax laws can change, so it is worth checking IRS guidance or speaking with a tax professional about your specific situation.

Why the bill stalled in Congress

Legislative proposals face many hurdles before becoming law. A bill must pass the House, pass the Senate, and then be signed by the president. The No Tax on Tips Act did not clear these steps, partly because Congress prioritizes other legislation and partly because tax proposals often face disagreement over cost and fairness.

Some lawmakers supported the idea as a way to help service workers and others who earn tips. Others raised concerns about lost tax revenue and whether the benefit would actually reach lower-wage workers or primarily help higher earners in certain industries. These disagreements meant the bill did not move forward.

How tips are taxed right now

Currently, tips are treated as income by the IRS. If you receive tips, you must report them to your employer, and they are subject to federal income tax withholding, Social Security tax (6.2 percent), and Medicare tax (1.45 percent). Your employer includes tips in your W-2 form at the end of the year.

Cash tips that you do not report to your employer are still legally taxable income, even though they may not be automatically withheld. The IRS expects you to declare all tips on your tax return. Failing to report tips can result in penalties and interest if discovered during an audit.

How overtime is taxed right now

Overtime pay is taxed the same way as regular wages. There is no special tax break for overtime hours. If you earn overtime at time-and-a-half or double time, that extra pay is subject to federal income tax, Social Security tax, and Medicare tax at the same rates as your base pay.

Your employer withholds taxes from your overtime pay based on your W-4 form and current tax brackets. The overtime itself does not change your tax rate — it straightforward increases your total taxable income for the year, which may push you into a higher tax bracket if your total earnings cross a threshold.

What would have changed if the bill passed

Had the No Tax on Tips Act become law, tips would no longer be subject to federal income tax. You would still owe Social Security and Medicare taxes on tips, but the income tax portion would be eliminated. This would have meant a smaller tax bill for workers who receive tips regularly.

For overtime, a similar exemption would have removed federal income tax on hours worked beyond the standard 40-hour week. Like tips, Social Security and Medicare taxes would likely have remained. The exact details would have depended on the final version of the bill, since different versions proposed slightly different rules.

What to do about tips and overtime taxes now

Report all tips to your employer as required by law. If you receive cash tips, keep a record of them and include the total on your tax return. Your employer should report tips on your W-2, but you are responsible for accuracy — if the amount seems wrong, contact your employer to correct it.

For overtime, make sure your employer is calculating and withholding taxes correctly. Review your pay stub to confirm that overtime hours are being paid at the correct rate and that taxes are being withheld. If you think there is an error, raise it with your payroll department or HR.

If you have questions about how much tax you owe on tips or overtime, consider speaking with a tax professional or contacting the IRS directly. You can also use IRS.gov to find resources about reporting tips and calculating your tax liability.

Frequently Asked Questions

Could the bill be introduced again in the future?

Yes. Bills that do not pass can be reintroduced in future sessions of Congress. If there is renewed political interest or public support, a similar proposal could be brought forward again. However, there is no set timeline for this, and it would depend on lawmakers' priorities and political circumstances.

Do I have to report cash tips to my employer?

Yes. Federal law requires you to report all tips to your employer, including cash tips. Your employer needs this information to withhold taxes correctly and report your income to the IRS. Failing to report tips can result in penalties and back taxes owed.

Is there any current tax break for tips or overtime?

No federal income tax break exists for tips or overtime. However, some states or local jurisdictions may have different rules. Check your state's tax agency website or speak with a tax professional to learn whether your state offers any relief on tips or overtime income.

What if my employer did not withhold taxes on my tips?

You are still responsible for paying tax on tips even if your employer did not withhold it. When you file your tax return, you must report all tips as income. If you owe taxes that were not withheld, you may owe a balance when you file, or you can adjust your W-4 to increase withholding on future paychecks.