No Tax on Tips? What Restaurant Operators Need to Know Now

A new piece of legislation has recently caught the attention of restaurant workers and employers alike: the No Tax on Tips Act. Both the House and Senate have introduced versions of the bill, which, if passed, would allow tipped workers to exempt a portion of their tip income from federal taxes.

The proposal fulfills campaign promises from both sides of the political aisle, but for restaurant operators, it raises real and immediate questions. If enacted, it could change how teams are paid, how tips are reported, and how restaurants manage compliance, possibly as soon as 2026.

According to the Urban-Brookings Tax Policy Center, around 60 percent of households with tipped workers stand to benefit from the act, with an average annual tax cut of $1,800. That’s a meaningful shift in take-home pay for many restaurant professionals. But it’s not without complications.

Before the law passes, restaurant operators should focus on five key areas to prepare their teams, protect their…