TIPS Act

Summary#

This bill would change the Fair Labor Standards Act and the Internal Revenue Code. It would remove the separate, lower minimum wage for tipped employees so tipped workers must be paid the wage set in section 6(a)(1). All tips would be kept by the employee, except that tips may be pooled among employees who customarily and regularly receive tips. The bill also adjusts penalty language about employers unlawfully using or keeping tips.

The bill creates a new federal tax deduction for "cash tips" that employees report to their employers under section 6053(a). The deduction would be allowed for qualified tips, but not available if the taxpayer’s adjusted gross income exceeds $112,500. "Qualified tips" are defined as tips from unrelated parties, given to non-owners, and received in occupations that traditionally get tips (examples listed include cosmetology, hospitality, food and beverage service, parking attendants, and custodial service). The deduction would be available to taxpayers who do not itemize and would not be treated as a miscellaneous itemized deduction or counted under certain overall deduction limits. The Secretary of the Treasury must modify withholding tables and procedures to reflect the new deduction. The tax changes apply to taxable years beginning after December 31, 2025.

What it means for you#

• If you are a tipped worker: your employer would have to pay you the wage set in section 6(a)(1) instead of a lower tipped wage. You would keep all tips you receive, though tips can be pooled among workers who regularly get tips. You may be able to claim a federal tax deduction for cash tips you report to your employer if your adjusted gross income is $112,500 or less and you meet the listed "qualified tips" rules. The tax change takes effect for tax years starting after December 31, 2025.
• If you run a business that employs tipped workers: you may no longer take a tip credit to pay a lower wage to tipped employees and must pay the wage in section 6(a)(1). You must not unlawfully use or keep employees’ tips. You may need to update payroll and withholding procedures to account for the new wage and the new tip deduction rules.
• If you file taxes: the bill would add a new deduction for reported cash tips that non-itemizers can claim, with an income limit. Withholding tables and procedures would be updated to reflect the deduction.

Expenses#

No publicly available information on estimated budgetary effects, cost estimates, or fiscal impact is included in the bill text or metadata provided.

Proponents' View#

No publicly available information on proponents’ statements or justifications is included in the bill text or metadata provided.

Opponents' View#

No publicly available information on opponents’ statements or objections is included in the bill text or metadata provided.