TIPS Act

This bill eliminates the separate minimum wage for tipped employees under the Fair Labor Standards Act, requiring tipped employees to be paid the full federal minimum wage and allowing them to keep all tips, except for valid tip pools. It also creates a new tax deduction for cash tips received by workers in certain occupations.

Sec. 2, Repeal of separate minimum wage for tipped employees: The bill amends the Fair Labor Standards Act to require that tipped employees be paid the same minimum wage as other employees (set in section 6(a)(1) of the Act). All tips must be retained by the employee, though tip pooling among employees who customarily receive tips is still allowed. The bill also updates penalty provisions to refer to tips unlawfully used or kept by the employer, instead of tip credit amounts.

Sec. 3, Deduction for cash tips: The bill adds a new section to the Internal Revenue Code allowing individuals to deduct the amount of qualified tips they receive and report to their employer. The deduction is limited to individuals with adjusted gross income not exceeding $112,500. Qualified tips are tips received from an unrelated party by an employee without an ownership stake in the business, in occupations that traditionally receive tips, such as cosmetology, hospitality, food and beverage service, parking attendants, and custodial service. The deduction is available to both itemizers and non-itemizers, and the Treasury Secretary must adjust withholding tables to account for this deduction. These changes apply to taxable years beginning after December 31, 2024.