The House Ways and Means Committee has announced that independent contractors, including drivers, couriers, and beauty professionals, will be eligible for a tax break under the House's "No Tax on Tips" proposal. This initiative would allow 1099 workers to deduct qualified tips.
According to a report, section 110101 of the proposal introduces an above-the-line tax deduction for qualified tips received by both W-2 employees and 1099 independent contractors in traditionally tipped occupations. The tips must be voluntary and reported by the end of 2024. The deduction excludes high earners and those in specified service businesses under IRC 199A(d)(2). It is limited to individuals with a valid Social Security number for tax years 2025 through 2028. Additionally, the bill expands the Federal Insurance Contributions Act (FICA) tip tax credit to include beauty service establishments, allowing employers to claim a credit on Social Security taxes for tips paid to barbers, hairstylists, estheticians, and similar professionals.
The National Employment Law Project reports that over 4.3 million people in the U.S. work in traditionally tipped jobs, with women and people of color disproportionately represented. The proposed tax deduction could help address income inequality by allowing lower-income earners to retain more of their income.
As per The Wall Street Journal, Uber and DoorDash have been lobbying for the inclusion of their independent contractors in the proposed legislation. At the time, the bill’s ’no tax on tips’ provision primarily benefited employees like restaurant and casino workers but excluded gig workers who receive Form 1099. Uber's head of federal affairs, Javi Correoso, emphasized the importance of including their drivers: "We've become a major component of how consumers tip." DoorDash's global head of public policy, Max Rettig, added: "Tips are tips—there's no reason to exclude Dashers based on how they work."
The House Ways & Means Committee is the oldest committee in the U.S. Congress with jurisdiction over all taxation, tariffs, and other revenue-raising measures. It also oversees Social Security, unemployment benefits, and Medicare while playing a central role in shaping U.S. economic and fiscal policy.
