House Republicans’ budget mega-bill includes a provision to end the taxation on tips through the end of President Donald Trump’s term — fulfilling his campaign promise made in Las Vegas and backed by Nevada Democrats, who are still likely to oppose the budget bill for its other cuts.

On Monday, the House Ways & Means Committee released its portion of Republicans’ tax and spending bill, which included temporary tax relief for tip earners structured similarly to a bill first introduced in 2024 by Sen. Ted Cruz (R-TX). That bill garnered the support of Nevada’s Democratic senators and the Culinary Workers Union Local 226, the union that represents waiters and bartenders in the state and is a powerful player in Democratic politics.

The Ways & Means section of the bill is a first draft, meaning “no tax on tips” will need to survive not only a vote in committee, but also make it through the floor of the House as part of the broader mega-bill and negotiations with the Senate before making it to Trump’s desk — a process Republicans are hoping to complete by July 4. By using a procedural tool called budget reconciliation, Republicans can bypass the Senate filibuster and pass their bill with only GOP votes.

The provision’s inclusion creates an awkward situation for Nevada’s congressional Democrats, most of whom support the proposal but will almost certainly vote against the final bill because it extends tax cuts for the wealthy and includes cuts to Medicaid and food assistance programs. 

Culinary Union Secretary-Treasurer Ted Pappageorge acknowledged the dynamic, saying that while he was glad about the policy’s inclusion, the underlying bill is too poisonous to support.

“It's good news that we actually see some movement by Republicans on this,” Pappageorge said. “It's connected to a terrible bill, unfortunately.”

Rep. Steven Horsford (D-NV), a member of Ways & Means, said he worked with Rep. Vern Buchanan (R-FL) to ensure that the guardrails he favors (including the exclusion of executive pay and preserving payroll taxes) were included. But Horsford, who has his own bill that eliminates taxes on tips and raises the subminimum wage for tip earners, said that the language didn’t go far enough. 

“Unfortunately, the president is choosing to short change tipped workers by not making this provision permanent,” Horsford said in an interview. 

During the Ways & Means markup, Horsford confirmed that gifts between family members, for example, could not be deducted as tips and said that while he “glad to see that no tax on tips is in the bill, albeit temporarily,” he hoped Republicans would join him in further clarifying the guardrails around the deduction.

The Joint Committee on Taxation estimated that the policy will add about $40 billion to the deficit over the next three years — far less costly than extending the 2017 Trump tax cuts or his other campaign proposals on tax. 

How it would work

No tax on tips is a popular idea with voters, though labor economists warn there could be some concerning downstream effects — including employers avoiding raising wages or consumers tipping less. 

Trump first proposed the policy in a Las Vegas rally in June in an effort to appeal to working-class voters, including the more than 350,000 workers in Nevada’s massive hospitality industry. Trump said he got the idea from a waitress at his Las Vegas hotel.

The no tax on tips policy is structured as a 100 percent deduction from federal income tax for workers in occupations that “traditionally and customarily receive tips” — which will need to be defined by the U.S. Treasury within 90 days of the bill’s enactment. The deduction only applies to income tax, meaning employers will still deduct payroll taxes that fund Social Security and Medicare from their employees’ tips.

It excludes highly compensated employees, a key guardrail that Democrats had pushed for to ensure that executive bonuses would not be eligible, as well as an income cap of $160,000. The bill directs Treasury to ensure companies do not reclassify income as tips to abuse the intent of the deduction.

The original Cruz bill set a maximum deduction of $25,000, while the Ways & Means text does not include a cap on how large the deduction can be. That means the benefits could most accrue to workers in professions where tips make up a higher percentage of their earnings — and given that more than one-third of tipped workers do not earn enough income to owe federal taxes, tipped workers at higher-end establishments will likely be the biggest beneficiaries. 

The bill also makes tips for non-employees of companies such as Uber and other contractors eligible for the tax relief. Eligible tipped employees must have a Social Security number to qualify. And it applies to all cash tips — which include gratuities left in cash, on credit or debit cards or via check. 

But the policy expires at the end of 2028, keeping the budget hit lower than if the change was made permanently and leaving another president on the hook for its potential renewal. 

The Ways & Means portion of the bill also eliminated taxation on overtime pay, again structured as an income tax deduction capped at $160,000. That portion is projected to cost about $120 billion.

In an interview, Sen. Jacky Rosen (D-NV) noted about a quarter of Nevada’s workforce is part of the hospitality industry and that she plans to evaluate the no tax on tips section once the bill reaches the Senate — though she’s staunchly opposed to the Medicaid cuts it will be paired with.

Rosen said she wants no tax on tips to become law, but, like Horsford, wants to ensure the guardrails are sound.

“We want to do what’s right for Nevada and our tipped workers, but I don’t suddenly want Elon Musk to declare his entire salary as a tip,” she said.

This story was updated at 2:50 p.m. on 5/14/2025 to include comments from Ted Pappageorge.