Nevada Democrats highlight possible shortcomings in ‘no tax on tips’ policy

Democratic members of Nevada’s federal delegation urged the Department of Treasury to address possible shortfalls of the ‘No Tax on Tips’ policy as it’s implemented.

The major reconciliation package known as the One Big Beautiful Bill Act that was signed into law July included a popular policy eliminating taxes on tipped income. It specifically provided workers with a temporary tax deduction of up to $25,000 annually.

In a letter sent Wednesday, Nevada’s Democratic federal delegation — senior U.S. Sen. Catherine Cortez Masto, Sen. Jacky Rosen, Rep. Dina Titus, Rep. Susie Lee and Rep. Steven Horsford — highlighted issues for the Treasury to consider when implementing the provision.

“As you know, Nevadans rely on tips more than any other state in the nation and tax relief has been a critical bipartisan priority,” the congressmembers wrote.

They expressed concerns about the possibility that “auto-gratuities” would not be included. Auto-gratuities are applied most often in high-volume or group-service settings, such as big parties at restaurants. Under one section of the provision, payments that are “not voluntary” or “determined by the payor” are excluded.

The Democratic congressmembers argue that there is no distinction between auto-gratuities and a tip for employees, and excluding auto-gratuities would disadvantage workers based solely on their employer’s business model.

They also urged Treasury to provide a public comment period when coming up with a list of eligible occupations, since only workers in occupations listed by the department will be permitted to claim the deduction, the letter states.

“We agree that guardrails are an important part of successful implementation, but urge you to take a broad reading of traditionally tipped occupations and use the regulatory authority provided elsewhere within the statute to prohibit such gaming.”

In Nevada, tipped occupations include valets, cooks, hosts, cocktail servers and more, and “a narrow reading” of the provision “runs the risk of inadvertently leaving out hardworking Nevadans for whom Congress intended to provide tax relief,” the letter states.

Dancers in Nevada also might not be eligible for the tax relief even if they rely on tipped income, the congressmembers warned. The tax provision restricts workers in a “Specified Trade or Business,” which includes the performing arts, they wrote.

“We urge Treasury and the IRS to issue regulations that allow, to the extent permitted under the statute, the ability of performing artists to use the deduction when their occupation otherwise has traditionally received tips,” the members wrote.

Many workers who earn tips in Nevada are covered by a Gaming Industry Tip Compliance Agreement or a similar program in which the IRS and employers designate set tip rates for various employee classifications to ease reporting requirements, according to the letter.

Nevada’s Democratic members of Congress urged Treasury and the IRS to maintain that agreement and provide employees the ability to take tips deductions based on their tip rate rather than force them to begin full reporting of individual tips outside the agreement in order to benefit from the deduction, the members wrote.

They also asked that the Treasury clarify how much can be deducted for people who are married and file jointly. They urged IRS to allow up to $25,000 per individual, or a $50,000 cap on joint returns.

Contact Jessica Hill at jehill@reviewjournal.com. Follow @jess_hillyeah on X.