S. 129 — No Tax on Tips Act

This section establishes an above-the-line deduction (available to both itemizers and non-itemizers) of up to $25,000 for qualified tips received and reported to employers under IRC §6053(a) in taxable years beginning after December 31, 2024. Qualified tips are cash tips received in occupations that traditionally and customarily received tips on or before December 31, 2023 (as listed by Treasury within 90 days of enactment), excluding tips received by highly compensated employees (i.e., those with compensation exceeding the threshold under IRC §414(q)(1)(B)(i)—currently $150,000, indexed for inflation—from that employer in the prior taxable year). The deduction is exempt from miscellaneous itemized deduction rules and the overall limitation on itemized deductions, and Treasury must modify withholding tables to account for it.

This section extends the employer Social Security tax credit for employee tips under IRC §45B(i.e., equal to the employer's 6.2% share of taxes paid on such tips) to beauty service establishments (defined as barbering and hair care, nail care, esthetics, or body and spa treatments) where tipping is customary. The section also modifies the minimum wage threshold used to determine qualifying tips to the current federal rate under FLSA §6(a)(1) ($7.25 per hour) for beauty services (from the rate in effect on January 1, 2007 ($5.15 per hour)), while retaining the 2007 rate for food and beverage establishments. (As background, the credit applies only to tips exceeding the applicable threshold when added to an employee's cash wages, without regard to the FLSA tipped minimum wage under §3(m).) The changes apply to taxable years beginning after December 31, 2024.