CHICAGO, May 14, 2025 — President Trump’s campaign pledge to exclude workers’ tips from their taxable income has moved a giant step closer to becoming a reality, with Republican lawmakers incorporating the break in the tax reform bill they released Monday.
Now Congress has to figure out how to pay for the lost revenues.
Two major tax authorities, Yale's Budget Lab and the Tax Foundation thinktank, have both estimated the exemption will cost the nation about $110 billion in lost tax revenues over a 10-year stretch.
The National Restaurant Association and other proxies for food-away-from-home employers have supported the notion of tips being re-designated as untaxed income, noting that the move would increase the incomes of the industry’s employees.
But they’ve stressed that the fiscal fallout has to be addressed. Otherwise, the gains of servers and other tipped employees could turn into a heavier burden for other taxpayers, including businesses.
The restaurant association, for instance, observed during its annual Public Affairs Conference in early April that certain restrictions may have to be placed on the exemption. Representatives noted that proposals have been aired to limit the deductions to the first $25,000 of a server’s income from tips, with anything over that threshold taxed as usual.
The tip-exemption provision of the 389-page bill aired Monday excludes tipped workers who meet the federal definition of a “highly compensated employee,” or currently any taxpayer earning more than $155,000 per year.
Those highly compensated individuals would also be ineligible for another tax break introduced in the bill, the exemption of overtime pay from taxable income.
Trump first proposed an exemption for tipped income after chatting with a server who was waiting on him during the presidential campaign. The Republican Party candidate asked her how he could improve her life, and she responded that it’d be nice if so much of her tips weren’t eaten by taxes.
Trump proposed the tips exemption at a subsequent campaign stop. A similar promise was then taken up by his opponent in the run-up to the election, Democratic Party nominee Kamala Harris.
But few political veterans gave the proposals much chance of succeeding, citing the tax revenues that would be lost.
The tax reform bill aired Monday was dubbed “The One, Big, Beautiful Bill” in deference to Trump’s request for a single piece of legislation incorporating all his desired changes in federal tax codes.
It still has far to go before even being put to a vote by the full House of Representatives. Three different House committees have oversight of the legislation’s provisions, raising the likelihood that it could be significantly altered by the time the bill moves to a floor vote.
If approved, it would then need Senate approval before being sent to the White House for Trump’s signature.
Both the House and the Senate are controlled by Republicans.
As Managing Editor for IFMA The Food Away from Home Association, Romeo is responsible for generating the group's news and feature content. He brings more than 40 years of experience in covering restaurants to the position.
Cover image courtesy: Closed Loop Project