The Senate passed the No Tax on Tips Act, moving federal tax relief for tipped employees one step closer. If enacted, the law could save restaurant, hotel and service workers thousands of dollars each year in Michigan.
What the federal bill would change
The No Tax on Tips Act allows employees to deduct up to $25,000 in reported cash tips from federal income taxes. To qualify, employees must work in jobs where tipping is customary and report tips to their employer for payroll tax purposes.
The law excludes high earners. Workers with annual income over $160,000 in 2025 do not qualify though the threshold will rise with inflation. Within 90 days of passage, the Treasury Secretary must publish a list of jobs that count as “traditionally tipped occupations.”
This measure could reduce the federal tax burden by as much as $2,700 per year for a single server.
Michigan proposal could add state tax relief
Some states are moving further. The Michigan House approved a budget plan that eliminates state income tax on tips for restaurant servers and other tipped employees. With a state tax rate near 4%, a worker could save about $4 for every $100 in tips if the bill becomes law.
Industry leaders argue that tax relief may help restaurants fill jobs by making tipped work more financially attractive.
Why IRS collection still matters
Even with new deductions, the IRS will still enforce tax obligations. If you fall behind, the IRS may file a lien against your property or levy your assets. To avoid seizure, you must act quickly. Your options include:
- Offer in compromise: Settle debt with a reduced lump sum.
- Payment plan: Make monthly installments to stay in compliance.
- Non-collectible status: Request temporary relief if you cannot pay.
- Collection due process hearing: Challenge or negotiate after a seizure notice.
- Full payment: Pay the full balance if possible.
Each option has limits but taking action early protects your property.
Considering your options
Tax relief bills may reduce burdens for tipped workers but IRS enforcement for unpaid debts remains strict. If you worry about how these changes affect you or if you already face collection actions, you may consult an attorney to review your situation. Legal counsel can explain IRS procedures and help you protect your rights.