Trump proposed a no-tax-on-tips policy, but Congress did not pass it into law
During his 2024 presidential campaign, Donald Trump proposed eliminating federal income tax on tips. He did not sign this into law during his first term, and as of early 2025, no federal legislation removing taxes from tips has passed Congress. Trump mentioned the idea again after winning the 2024 election, but a bill would need to move through both the House and Senate and be signed by the president to become law — that has not happened.
What exists instead are state-level policies. Some states have already removed or reduced taxes on tips, and a few others have proposed doing so. The federal tax code still treats tips as income subject to federal income tax, Social Security tax, and Medicare tax.
Key Takeaways
- Trump proposed eliminating federal income tax on tips during his 2024 campaign, but Congress has not passed this into law.
- Tips are currently taxed as income at the federal level under existing tax law, and that has not changed.
- A handful of states including Florida and Nevada have passed their own laws removing state income tax from tips, though federal taxes still explore.
- For a federal no-tax-on-tips law to take effect, it would need to pass both chambers of Congress and be signed by the president.
What the current federal tax law says about tips
Under current Internal Revenue Service rules, tips are treated as wages and are subject to federal income tax withholding. Employers are required to report tips to the IRS, and employees must include tips in their taxable income on their tax return.
Tips are also subject to Social Security tax (6.2 percent) and Medicare tax (1.45 percent), which are withheld from paychecks. Self-employed people who receive tips must report and pay taxes on them as well. This applies to restaurant servers, bartenders, delivery drivers, hotel housekeeping staff, and other workers who receive tips as part of their compensation.
Which states have removed taxes on tips
Florida passed a law in 2023 removing state income tax from tips, effective when ready since Florida has no state income tax anyway. Nevada, which also has no state income tax, does not tax tips. Montana passed legislation in 2023 that exempts tips from state income tax starting in 2024.
A few other states have proposed similar measures but have not passed them into law. Even in states that do not tax tips at the state level, the federal government still collects federal income tax, Social Security tax, and Medicare tax on those tips.
How a federal no-tax-on-tips law would work
If Congress were to pass and the president were to sign a federal law removing taxes from tips, it would change how the IRS treats tip income. Tips would no longer count toward federal income tax, though the law could be written to include or exclude Social Security and Medicare taxes.
Such a law would require a bill to be introduced in either the House or Senate, debated, voted on, and passed by both chambers with the same language. The president would then sign it. The IRS would issue new guidance to employers about how to handle tip reporting and withholding. Any change would likely take effect on a specific date set by the law, such as the start of a tax year.
Why this proposal has not become law
Tax policy changes require congressional action, and Congress has competing priorities and disagreements about how to structure the tax code. A no-tax-on-tips proposal would reduce federal revenue, which means Congress would need to decide whether to offset that loss by raising taxes elsewhere, cutting spending, or accepting a larger deficit.
During Trump's first term (2017–2021), Congress did not pass a no-tax-on-tips law. After Trump's 2024 campaign proposal, the idea gained attention but has not moved through the legislative process. Bills can be introduced by any member of Congress, but they do not become law unless both the House and Senate vote to pass them and the president signs.
What would change if a federal no-tax-on-tips law passed
Workers who receive tips would see a reduction in federal income tax withholding from their paychecks. The exact amount would depend on the worker's tax bracket and how much they earn in tips. Someone earning $30,000 in tips per year would see a different tax savings than someone earning $5,000 in tips.
Employers would need to update their payroll systems to stop withholding federal income tax on tips while continuing to withhold Social Security and Medicare taxes (unless the law changed those as well). The IRS would need to update its forms and instructions for both employers and workers.
The difference between a proposal and a law
A proposal is an idea that a politician or group suggests. A law is something that has been voted on by Congress, passed by both chambers, signed by the president, and is now enforceable. Trump's no-tax-on-tips idea remains a proposal. Unless and until it passes through Congress and is signed into law, it does not change how tips are taxed.
Readers should be cautious about claims that a no-tax-on-tips law is already in effect. As of early 2025, it is not. Tips remain subject to federal income tax, Social Security tax, and Medicare tax under current law.
Frequently Asked Questions
Do I have to report tips to my employer?
Yes. Under IRS rules, you must report tips of $20 or more per month to your employer. Your employer is required to report those tips to the IRS. Tips are treated as income and are subject to withholding.
If I live in a state with no state income tax, do I still owe federal tax on tips?
Yes. States like Florida and Nevada do not have state income tax, so tips are not taxed at the state level. However, federal income tax, Social Security tax, and Medicare tax still explore to tips in those states.
Could a no-tax-on-tips law pass in the future?
It is possible, but it would require Congress to vote on and pass a bill and the president to sign it. Currently, no such bill has passed. Any change to federal tax law requires this legislative process.
What is the difference between Trump's proposal and an actual law?
A proposal is an idea. A law is something Congress has voted on, both chambers have passed, and the president has signed. Trump's no-tax-on-tips idea is a proposal. It has not become law.