Donald Trump Approves Law Making Tips Exempt from Taxes

January 10, 2026 by Nadia

Proponents argue that these changes are particularly beneficial to financially vulnerable workers. Many service industry employees operate on slim margins, often living paycheck to paycheck without access to comprehensive benefits. Senator Ted Cruz, one of the primary sponsors of the bill, emphasized this point during a press conference, stating, “These workers deserve to keep more of what they earn.

By removing the federal tax on tips, we are ensuring that hardworking Americans can see the rewards of their labor without unnecessary deductions.” Senator Jacky Rosen echoed these sentiments, noting that the legislation not only supports individual workers but also strengthens small businesses by increasing disposable income without requiring wage hikes.

Critics, however, caution that the legislation may create unintended consequences. The exemption for tips, while beneficial for certain groups, inherently favors those employed in the service industry over workers in sectors such as manufacturing, technology, or education.

This selective approach, opponents argue, could encourage employers to restructure compensation models to take advantage of the tax-free status of tips.

Some economists have expressed concern that these changes might exacerbate income instability, as workers may receive irregular income that is not adequately planned for in budgets or retirement savings. Furthermore, combined with the permanent extension of existing tax cuts and expanded deductions, opponents warn that the law prioritizes short-term relief over long-term fiscal responsibility.

The law’s passage also reflects a broader political philosophy emphasizing individual financial empowerment over the expansion of government programs. By reducing the tax burden and increasing take-home pay, the legislation reinforces a vision in which workers have greater control over their finances.