Congress redefines 'voluntary' tips to cut taxes—but for whom?
S. 2780 — No Tax on Large Party Tips Act · Filed by Ruben Gallego (D-AZ) · Introduced Sep 11, 2025 · Referred to committee
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What it does
This bill reclassifies two types of tips as 'voluntary' for tax purposes: tips automatically added to bills and tips suggested by businesses at checkout. The effect is to allow these tips to qualify for a tax deduction that currently applies only to voluntarily paid tips, potentially reducing taxable income for businesses or individuals who receive or report such tips.
Why we flagged it
The bill's sole function is to redefine which tips qualify as 'voluntary' under tax law, enabling a specific tax deduction. It is a narrow technical amendment to the Internal Revenue Code with no broader policy purpose stated.
What the text implies
- Businesses may increase use of auto-added tips and suggested-tip prompts if they believe this reclassification reduces their tax liability or exposure, potentially normalizing what workers and customers perceive as mandatory tipping.
- The bill does not clarify who claims the deduction (the tip recipient, the business, or both), creating ambiguity about whether the tax benefit flows to workers or to employers.
The full analysis lists 4 implications of this text.
Who stands to gain
hospitality and food-service businesses (if deduction is claimed by employers); service workers (if deduction is claimed by tip recipients)