The Senate on Tuesday unanimously passed the No Tax on Tips Act in a surprise vote, which could boost momentum for an idea floated by President Donald Trump during his 2024 campaign. 

If enacted, the legislation would create a federal income tax deduction of up to $25,000 per year, with some limitations. The tax break applies to workers who typically receive cash tips reported to their employer for payroll tax withholdings, according to a summary of the bill. 

To qualify for the deduction, there’s a $160,000 earnings limit for 2025. That limit would be indexed for inflation yearly.

More from Personal Finance:
Trump’s IRS pick Billy Long says agency ‘should not be politicized’
As student loan delinquencies spike, ‘spillover’ risk rises: New York Fed
Trump tariffs create the ‘perfect storm’ for financial scams, expert says

Currently, workers who receive cash tips of $20 or more monthly must report those earnings to employers, according to the IRS. Cash tips can include funds received directly from customers, tip-sharing from other employees or tips paid via credit card.

During the 2024 presidential campaign, Trump and Vice President Kamala Harris both called for no tax on tips during appearances in Nevada.

The bill advanced by the House Ways and Means Committee last week also includes a no tax on tips provision. If enacted, workers could deduct all “qualified tips” from 2025 through 2028. Tips must be reported to qualify for the deduction. However, this could still change before the full House floor vote.

“Whether it passes free-standing or as part of the bigger bill, one way or another, no tax on tips is going to become law and give real relief to hard-working Americans,” Sen. Ted Cruz, R-Texas., said from the Senate floor on Tuesday. 

Cruz introduced the bipartisan bill in January with Sens. Jacky Rosen and Catherine Cortez Masto from Nevada.

In 2023, there were roughly 4 million U.S. workers in tipped occupations, representing 2.5% of all employment, according to estimates from The Budget Lab at Yale University.

“This is a very narrow subset of the workforce,” said Alex Muresianu, senior policy analyst at the Tax Foundation. 

Tipped occupations include jobs in restaurants and hotels, as well as courier services like taxis, rideshares and food delivery services, he said.

What’s more, a good chunk of tipped workers are part-time employees, and they wouldn’t see a significant benefit from a tip exemption, he said. Many such workers already don’t pay federal income tax because their earnings fall under the standard deduction.

“For the lowest income tipped workers, it provides no marginal benefit” Muresianu said. “It would benefit moderate to middle income workers substantially.”

A tax package House Republicans may pass as soon as this week would kill a slew of consumer tax breaks tied to clean energy, as currently drafted. If it becomes law, households interested in the tax breaks may have to rush to claim them this year, experts said.

Tax breaks on the chopping block include ones for consumers who buy or lease electric vehicles, and others for households that make their homes more energy-efficient.

The Biden-era Inflation Reduction Act, which made historic investments to combat climate change, created or enhanced those tax breaks.

Most would be terminated after 2025, about seven years earlier than under current law.

“Based on the existing proposed language, if you’ve been considering an EV or planning to get one, now is the time to do it,” Alexia Melendez Martineau, senior policy manager at Plug In America, wrote in an e-mail.

Consumers who buy a new EV can claim a tax break worth up to $7,500. One for used EVs is worth up to $4,000. Car dealers can also pass along a $7,500 credit to consumers who lease an electric vehicle.

The House tax proposal would terminate these tax credits after 2025. The Inflation Reduction Act made them available through 2032.

A “special rule” would keep the $7,500 credit in place for some new EVs for an additional year, through 2026. However, it would only be available for new vehicles from automakers that haven’t yet sold 200,000 EVs. That would disqualify EVs from companies like General Motors (GM), Tesla (TSLA) and Toyota (TM).

About 7.5% of all new-vehicle sales in the first quarter of 2025 were EVs, an increase from 7% a year earlier, according to Cox Automotive. Tax credits for EVs have been available in some form since 2008, when George W. Bush approved them.

The Inflation Reduction Act made it easier for consumers to access the EV credit, by allowing dealers to issue the tax break to consumers upfront at the point of sale instead of waiting until tax season. Consumers who buy an EV in the near term would be wise to pick this option, experts said.

“We recommend taking the upfront rebate at the dealership, as it reduces the price you pay now and shifts liability to the dealer to manage getting the credit from the IRS,” Martineau said.

One — the energy efficient home improvement credit, also known as the 25C credit — is worth up to 30% of the cost of a qualifying project. Taxpayers can claim up to $3,200 per year on their tax returns, with the overall dollar amount tied to specific projects.

Another — the residential clean energy credit, or the 25D credit — is also worth 30% of qualifying project costs. It doesn’t have an annual or lifetime dollar, except for certain limits on fuel cells, according to the IRS.

They are currently available through 2032. (The 25D credit phases down to 26% for installations in 2033 and 22% for those in 2034.)

Both tax credits would be repealed after 2025 under the House bill.

More from Personal Finance:
Student loan borrowers risk ‘potential spillovers’ as delinquencies rise
What Moody’s downgrade of U.S. credit rating means for your money
Trump’s IRS pick Billy Long says agency ‘should not be politicized

The 25C and 25D credits have been available in some form since 1978 and 2005, respectively, according to economists at the Haas Energy Institute at the University of California, Berkeley.

More than 3.4 million U.S. households claimed one of the credits in 2023, receiving more than $8 billion, according to the Treasury Department.

Experts recommend that consumers considering a home-efficiency project have it completed by year’s end to be able to claim a tax credit.

“If a homeowner was looking to take advantage of the 25C tax credit, under what is being proposed [by the House] they’d need to ensure their system was put in service this year,” said Kara Saul Rinaldi, president and CEO of AnnDyl Policy Group, an energy and environmental policy strategy firm.

The House tax plan’s repeal or modification of clean energy credits — including those for EVs and home efficiency — would raise $707 billion over a decade, according to an analysis published Monday by the Penn Wharton Budget Model.

As drafted, the overall House bill would raise the U.S. deficit by a net $3.3 trillion over a decade, after accounting for spending cuts, Penn Wharton said.

Of course, the tax bill’s text may change.

There appears to be dissent from within House Republican ranks over various aspects of the bill. Some of the infighting is tied to the repeal of climate related tax breaks, which have been more popular among consumers than anticipated.

The Senate also needs to pass the measure before it heads to the president’s desk.

“Republicans are far from united, with deficit hawks pushing for greater deficit reduction, centrists objecting to steep welfare cuts and blue-state Republicans fighting for bigger State and Local Tax (SALT) exemptions,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a research note on Tuesday.

Senate lawmakers pressed President Donald Trump‘s pick for IRS Commissioner, former Missouri Congressman Billy Long, about his opinions on presidential power over the agency, use of taxpayer data and his ties to dubious tax credits.

Long, who worked as an auctioneer before serving six terms in the House of Representatives, answered Senate Finance Committee queries during a confirmation hearing Tuesday.

One of the key themes from Democrats was Trump’s power over the agency, and Long told the committee, “the IRS will not, should not be politicized on my watch.”

More from Personal Finance:
What Moody’s downgrade of U.S. credit rating means for your money
Long-term care costs can be a ‘huge problem,’ experts say. Here’s why
How student loan borrowers can avoid default as Trump ramps up collection efforts

Sen. Elizabeth Warren, D-Mass., who provided her questions to Long in advance, asked whether Trump could legally end Harvard University’s tax-exempt status. If permitted, the move could have broad implications for the President’s power over the agency, she argued.

However, Long didn’t answer the question directly.

“I don’t intend to let anybody direct me to start [an] audit for political reasons,” he said.

Sen. Ron Wyden, D-Ore., scrutinized Long’s online promotion of the pandemic-era employee retention tax credit worth thousands per eligible employee. The tax break sparked a cottage industry of scrupulous companies pushing the tax break to small businesses that didn’t qualify.

“I didn’t say everyone qualifies,” Long said. “I said virtually everyone qualifies.”

Senators also asked about Long’s referral income from companies pushing so-called “tribal tax credits,” which the IRS has told Democratic lawmakers don’t exist.

“I did not have any perception whatsoever that these did not exist,” Long told the committee.

Senate Democrats also raised questions about donations people connected to those credits made to Long’s dormant Senate campaign, after Trump announced his nomination to head the IRS.

While Senate Democrats grilled Long on his record, Republicans focused on questions about taxpayer service. Several Republican lawmakers voiced support for Long, including the committee chairman Mike Crapo, R-Idaho. 

If confirmed by the Senate, Long could mean a shift for the agency, which previously embarked on a multibillion-dollar revamp, including upgrades to customer service, technology and a free filing program, known as Direct File.

When asked about the future of Direct File, Long said he planned to promptly examine the program, describing it as “one of the hottest topics at the IRS.”

But Long’s years in Congress will provide “credibility up on the Hill with the people who matter, which will be important,” Everson, who is currently vice chairman at Alliant, a management consulting company, previously told CNBC.

Long may be in a “better position than others to argue for the appropriate independence of the agency,” he said.