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S. 129 · Senate bill · 119th Congress
This bill establishes a new tax deduction of up to $25,000 for tips, subject to limitations. The bill also expands the business tax credit for the portion of payroll taxes an employer pays on certain tips to include payroll taxes paid on tips received in connection with certain beauty services.
Under the bill, the new tax deduction for tips is limited to cash tips (1) received by an employee during the course of employment in an occupation that customarily receives tips, and (2) reported by the employee to the employer for purposes of withholding payroll taxes. (Under current law, an employee is required to report tips exceeding $20 per month to their employer.)
Further, an employee with compensation exceeding a specified threshold ($160,000 in 2025 and adjusted annually for inflation) in the prior tax year may not claim the new tax deduction for tips.
Finally, the bill expands the business tax credit for the portion of payroll taxes that an employer pays on certain tips to include payroll taxes paid on tips received in connection with barbering and hair care, nail care, esthetics, and body and spa treatments. (Under current law, an employer is allowed a business tax credit for the amount of payroll taxes paid on certain tips received by an employee in connection with providing, delivering, or serving food or beverages.)
This Act may be cited as the “No Tax on Tips Act”.
(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:
(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.
(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.