Will No Tax on Tips Happen in 2025? What It Means for Rancho Mirage Residents

by | May 21, 2025 | Uncategorized

The U.S. Senate recently passed the “No Tax on Tips Act,” a bipartisan bill aiming to exempt up to $25,000 in annual cash tips from federal income taxes for certain service sector workers. The bill now awaits consideration in the House of Representatives.

What Is the “No Tax on Tips Act”?

Introduced by Senator Ted Cruz and co-sponsored by Senators Jacky Rosen and Catherine Cortez Masto, the bill proposes:

  • A federal income tax deduction of up to $25,000 per year for cash tips reported to employers for withholding purposes.

  • Eligibility limited to workers earning less than $160,000 annually.

  • A directive for the U.S. Department of Treasury to issue a list of traditionally tipped occupations within 90 days of enactment.

It’s important to note that the bill does not exempt tips from payroll taxes like Social Security and Medicare.

Implications for Rancho Mirage Residents

Rancho Mirage, located in Riverside County, California, has a sales tax rate of 7.75%. While the “No Tax on Tips Act” pertains to federal income taxes, it’s essential to consider its potential impact on local residents:

  • Increased Take-Home Pay: Eligible service workers could see an increase in their net income, potentially boosting local spending.

  • Tax Filing Considerations: If the bill becomes law, workers would need to accurately report their tips to benefit from the deduction, emphasizing the importance of meticulous record-keeping.

  • Potential State Tax Implications: While the bill addresses federal taxes, it’s unclear how California will respond. The state may choose to conform to the federal change or maintain its current taxation approach on tips.

Next Steps

The bill’s future hinges on its passage in the House of Representatives and subsequent approval by the President. If enacted, the changes would apply to the 2025 tax year, affecting filings in early 2026.

Conclusion

The “No Tax on Tips Act” has the potential to benefit many service industry workers in Rancho Mirage by reducing their federal tax burden. However, the full implications will depend on the bill’s final provisions and how state tax authorities respond. Residents should stay informed and consult with tax professionals to navigate these potential changes effectively