Tips would not be taxed under both the Senate and House bills. | Photo: Shutterstock.
The U.S. Senate passed a sweeping set of budget and tax changes on Tuesday, including several provisions that could have a significant impact on restaurants and their employees, including the elimination of taxes on tips.
The “One Big Beautiful Bill Act” passed thanks to a tiebreaking vote by Vice President JD Vance. It now heads back to the House to reconcile differences between the Senate bill and the one the House approved earlier before it can be sent to President Trump for approval.
House Speaker Mike Johnson in a statement vowed to put the Senate bill up for a vote by July 4.
Several provisions in the bills are endorsed by the National Restaurant Association and other business trade groups. That includes one that makes permanent deductions of up to 20% of income generated by businesses established as “pass-through entities.”
According to the International Franchise Association (IFA), 98% of franchisees and 73% of franchisors are pass-through entities.
Another provision will enable businesses to use depreciation and amortization in the calculation of business interest expense, which the IFA estimates will enable franchise businesses to deduct another $5.8 billion in interest.
“This bill includes the most important, pro-growth tax policies restaurant operators need to continue to power the national economy,” Sean Kennedy, EVP of the National Restaurant Association, said in a statement. “We appreciate the work that has gone into getting this bill through the Senate and encourage the House to quickly pass it, sending it to the president for signature.”
The IFA called the bill “a major milestone for the franchise community,” noting that its provisions will “fuel growth for franchise owners across the country.”
“This is a critical step toward unlocking new opportunities for franchise businesses nationwide,” Michael Layman, IFA’s chief advocacy officer, said in a statement.
Arguably the most notable provision for restaurants is one that will eliminate income taxes on tips and overtime.
The no-taxes-on-tips provision in particular was proposed during the presidential election, and endorsed by both Trump and his opponent, the Democrat Kamala Harris. More than half of tipped employees work for restaurants.
The provision itself has come under fire from some restaurant groups that believe it will further widen the divide between servers, who can make considerable income through tips, and back-of-house workers often paid minimum wage.
The Independent Restaurant Coalition (IRC), a group of independent operators, had pushed for a provision that would accommodate service charges, which many restaurants use instead of tips to balance pay between servers and back-of-house workers like cooks and dishwashers.
That provision is not in the Senate bill. “This bill is ultimately unfair to the line cooks, dishwashers, porters and prep staff that are vital to independent restaurants,” Erika Polmar, executive director with the Independent Restaurant Coalition (IRC), said in a statement.
Labor groups have likewise come out against the no-taxes-on-tips provision. The activist group One Fair Wage argued in a statement that two-thirds of tipped workers won’t benefit from that tax break because they earn too little in federal taxes.
That group also argued that the bill’s cuts to Medicaid will disproportionately hurt tipped workers.
The White House has argued that the provision will strengthen Medicaid for pregnant women, children, seniors, people with disabilities and low-income families and will instead eliminate “fraud and abuse.”
The Congressional Budget Office has estimated that the House-passed bill would cut Medicaid enrollment by 10.5 million by 2034 and increase the number of uninsured by 7.8 million by that year.
One Fair Wage argues that 1.2 million restaurant workers are at risk of losing their Medicaid coverage under the budget bill. “Restaurant workers aren’t asking for tax loopholes, they’re asking for a living wage and access to healthcare,” Saru Jayaraman, president of One Fair Wage, said in a statement. “This budget gives them neither.”
The bill does include provisions designed to increase access to childcare. It also increases the child tax credit and creates savings accounts for newborns. The IRC endorsed those provisions in particular.
“Affordable child care keeps parents in our kitchens and dining rooms,” Caroline Glover, IRC member and owner of Annette in Aurora, Colorado, said in a statement. “These reforms reflect what independent restaurants demanded—practical, bipartisan help that lets staff focus on their craft instead of scrambling for care.”
UPDATE: This story has been updated to add additional reaction.
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