Congress cuts income tax on tips for service workers—for 5 years
H.R. 558 — Tip Tax Termination Act · Filed by Don Bacon (R-NE) · Introduced Jan 20, 2025 · Referred to committee
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What it does
This bill excludes up to $20,000 in annual tips from federal income tax for workers in tip-reliant occupations (food service, hospitality, cosmetology) for a 5-year period ending December 31, 2029. The exclusion applies to tips received after December 31, 2024, and workers remain eligible for child tax credits and earned income credits on the excluded amount.
Why we flagged it
The bill is a straightforward, time-limited income tax exclusion for workers in tip-reliant occupations. It is narrowly scoped, transparent in mechanism, and benefits a specific economic class rather than a sector or corporation.
What the text implies
- The $20,000 annual exclusion cap may not cover all tips for high-volume service workers (e.g., busy restaurant servers in major cities), creating a partial benefit that tapers with income.
- Sunset after 2029 creates tax-planning uncertainty for workers and may incentivize front-loading tip income before expiration.
The full analysis lists 4 implications of this text.
Who stands to gain
Food service workers; Hospitality workers; Cosmetology professionals