Will tips continue to be taxed?
Kalshi market tracks rising odds of a law exempting tip income in 2025.
Will waiters soon get to keep all of their own tips? Traders on prediction platform Kalshi are placing real-money bets on whether the U.S. will pass a law this year exempting tipped income from federal taxes — and they think the odds are rising.
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The market, titled “Will no tax on tips become law in 2025?” tracks whether any federal legislation will be signed into law before Jan. 1, 2026, that eliminates federal income taxes on tips. The contract has steadily climbed following renewed tax cut promises from President Donald Trump — and slightly tipped higher after speculation of his surprise move to fund them using tariffs, following the broad swept tariff announcement on April 2.
Trump first teased the idea of ending tax on tips during campaign events in early 2024, calling it a way to support “hard-working service workers” without expanding government bureaucracy. In March 2025, the proposal was formally introduced as part of the GOP’s broader tax reform bill, which also includes extending key provisions from the 2017 Trump tax cuts. The proposal has been since updated on April 2.
In a recent Senate vote, Republicans advanced the legislative package 52-48, setting up a high-stakes battle in Congress. Included in the proposal is H.R. 482, which would allow tipped workers to fully deduct tips reported to their employer — essentially making them tax-free at the federal level.
According to the U.S. Department of the Treasury, income taxes bring in more than $2 trillion annually. Even with a sweeping 50% tariff on all imports, the resulting revenue would still fall short—amounting to less than 40% of current income tax collections, based on estimates from the Peterson Institute for International Economics.
“The problem is it can't raise anywhere near the amount of revenue you'd need to scuttle the income tax. And that's the really, I think, ironclad point,” Scott Lincicome, vice president of general economics and trade at the libertarian-leaning Cato Institute, a libertarian think tank, told CBS.
“Tariffs are about making America rich again and making America great again. And it’s happening, and it will happen rather quickly,” Trump said in March. “There’ll be a little disturbance, but we’re OK with that. It won’t be much.”
On April 2, Trump announced the new universal 10% tariff on imports, along with higher reciprocal tariffs on selected countries. On Kalshi, the “Yes” contract has seen increased trading volume as confidence in the bill’s passage gains steam.
There are a number of threads working in favor of tips becoming exempt. For starters, exempting tips polls well with working-class voters and has bipartisan emotional appeal — even if fiscal hawks are hesitant.
Additionally, with a new import tax expected to generate revenue, Republicans are framing the tip exemption as fiscally responsible.
The full GOP package is projected to add $11 trillion to the deficit over 10 years, according to Moody’s — making even modest cuts harder to justify without spending reform.
Another point against is that moderate Senate Democrats and some Republicans have expressed skepticism toward the broader bill, and the tip exemption may be sacrificed in negotiations.
There are also critics that say tariff revenue projections are optimistic at best — and that the costs of tax cuts like this one will still end up on the national credit card.
Kalshi’s resolution criteria state the market will resolve to “Yes” only if legislation that eliminates federal tax on tipped income becomes law before Jan. 1, 2026. Executive orders or state-level exemptions don’t count — it must be signed into law at the federal level.
If you have a strong prediction for which way it will go, or would like to use the market as a way to hedge – for example, if you rely on tip income – you can trade this market at Kalshi.
