No Tax on Tips Act
Officially: “No Tax on Tips Act” Read the full text
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1Short title
This section would let the Act be cited as the No Tax on Tips Act.
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1. Short title This Act may be cited as the No Tax on Tips Act .
2Deduction for qualified tips
This section would add a new section 224 to the Internal Revenue Code creating a tax deduction for qualified tips (the current section 224 would be renumbered as section 225 to make room for it). Any individual taxpayer would be allowed to deduct the amount of qualified cash tips received during the tax year that were included on the statements the individual gave their employer under section 6053(a) (the existing tip-reporting rule). The deduction could not exceed $25,000 for any taxpayer in a tax year. A qualified tip is a cash tip received in the course of a job in an occupation that traditionally and customarily received tips on or before December 31, 2023, as determined by the Treasury Secretary. The deduction would not apply to tips an employee received from an employer if, in the preceding tax year, that employee's compensation from that same employer (as defined for highly compensated employee purposes under section 414(q)) exceeded the dollar amount in effect under section 414(q)(1)(B)(i); in other words, tips earned working for an employer who paid the employee above that threshold the year before would not qualify. Within 90 days after enactment, the Treasury Secretary (or a delegate) would have to publish a list of the occupations that traditionally and customarily received tips on or before December 31, 2023, for use in applying this deduction. The deduction would be available to every individual taxpayer regardless of whether they itemize deductions, so a taxpayer who takes the standard deduction could still claim it. For taxpayers who do itemize, the deduction would not be treated as a miscellaneous itemized deduction and would not be counted under the overall limitation that can otherwise reduce a taxpayer's total itemized deductions, so those two restrictions would not reduce or eliminate this deduction. The Treasury Secretary (or a delegate) would also have to update federal income tax withholding tables and procedures to take this deduction into account. These changes would apply to tax years beginning after December 31, 2024.
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2. Deduction for qualified tips (a) In general (1) Deduction allowed Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section: 224. Qualified tips (a) In general There shall be allowed as a deduction an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the employer pursuant to section 6053(a). (b) Maximum deduction The deduction allowed by subsection (a) for any taxpayer for the taxable year shall not exceed $25,000. (c) Qualified tips For purposes of this section— (1) In general The term qualified tip means any cash tip received by an individual in the course of such individual's employment in an occupation which traditionally and customarily received tips on or before December 31, 2023, as provided by the Secretary. (2) Exclusion for certain employees Such term shall not include any amount received by an individual in the course of employment by an employer if such individual had, for the preceding taxable year, compensation (within the meaning of section 414(q))(4) from such employer in excess of the amount in effect under section 414(q)(1)(B)(i). . (2) Published list of occupations traditionally receiving tips Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary's delegate) shall publish a list of occupations which traditionally and customarily received tips on or before December 31, 2023, for purposes of section 224(c)(1) of the Internal Revenue Code of 1986 (as added by paragraph (1)). (3) Conforming amendment The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by redesignating the item relating to section 224 as relating to section 225 and by inserting after the item relating to section 223 the following new item: Sec. 224. Qualified tips. . (b) Deduction allowed to non-Itemizers Section 63(b) of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting and , and by adding at the end the following new paragraph: (5) the deduction provided in section 224. . (c) Non-Application of certain limitations for itemizers (1) Deduction not treated as a miscellaneous itemized deduction Section 67(b) of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (11), by striking the period at the end of paragraph (12) and inserting , and , and by adding at the end the following new paragraph: (13) the deduction under section 224 (relating to qualified tips). . (2) Deduction not taken into account under overall limitation Section 68(c) of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting , and , and by adding at the end the following new paragraph: (4) the deduction under section 224 (relating to qualified tips). . (d) Withholding The Secretary of the Treasury (or the Secretary's delegate) shall modify the tables and procedures prescribed under section 3402(a) of the Internal Revenue Code of 1986 to take into account the deduction allowed under section 224 of such Code (as added by this Act). (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2024.
3Extension of credit for portion of employer social security taxes paid with respect to employee tips to beauty service establishments
This section would extend an existing employer tax credit for a portion of the Social Security taxes paid on employee tips. Currently that credit counts only tips received in connection with providing, delivering, or serving food or beverages for consumption, where tipping of the employees who deliver or serve it is customary. This section would add a second category: tips received in connection with providing beauty services to a customer or client, where tipping of the employees providing those services is customary. Beauty service would be defined to mean barbering and hair care, nail care, esthetics, and body and spa treatments. The section is titled 'credit determined with respect to minimum wage in effect' and amends the provision that sets the minimum-wage reference point used to calculate the credit so that the fixed January 1, 2007 minimum-wage rate would continue to apply specifically in the case of food or beverage establishments, while establishments newly covered by the credit under this section would have the credit figured using the minimum wage in effect rather than that fixed 2007 rate. These changes would apply to tax years beginning after December 31, 2024.
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3. Extension of credit for portion of employer social security taxes paid with respect to employee tips to beauty service establishments (a) Extension of tip credit to beauty service business (1) In general Section 45B(b)(2) of the Internal Revenue Code of 1986 is amended to read as follows: (2) Application only to certain lines of business In applying paragraph (1) there shall be taken into account only tips received from customers or clients in connection with the following services: (A) The providing, delivering, or serving of food or beverages for consumption, if the tipping of employees delivering or serving food or beverages by customers is customary. (B) The providing of beauty services to a customer or client if the tipping of employees providing such services is customary. . (2) Beauty service defined Section 45B of such Code is amended by adding at the end the following new subsection: (e) Beauty service For purposes of this section, the term beauty service means any of the following: (1) Barbering and hair care. (2) Nail care. (3) Esthetics. (4) Body and spa treatments. . (b) Credit determined with respect to minimum wage in effect Section 45B(b)(1)(B) of the Internal Revenue Code of 1986 is amended— (1) by striking as in effect on January 1, 2007, and ; and (2) by inserting , and in the case of food or beverage establishments, as in effect on January 1, 2007 after without regard to section 3(m) of such Act . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2024.
Where it is
In the Senate.