TIPS Act

Bill Number

H.R. 1314

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-02-13: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Last Updated

2025-10-01T08:05:30Z

AI-Generated Summary

Purpose of the Legislation

The Tipped Income Protection and Support Act (TIPS Act) aims to ensure that tipped employees receive the full federal minimum wage from their employers, eliminating the current system where employers can pay a lower base wage and rely on tips to meet the minimum. It also provides tax relief for workers by allowing a deduction for reported cash tips, promoting fairer income protection and reducing tax burdens on tips.

Key Provisions

• Elimination of Tipped Minimum Wage (Section 2):
• Requires employers to pay tipped employees the full federal minimum wage as set in Section 6(a)(1) of the Fair Labor Standards Act (FLSA) of 1938.
• Employees must retain all their tips, though tip pooling (sharing tips among tipped staff) is still permitted.
• Updates penalties under FLSA Section 16 to focus on unlawfully kept or used tips, removing references to the "tip credit" (the amount employers previously offset from wages).

• Tax Deduction for Cash Tips (Section 3):
• Introduces a new deduction under the Internal Revenue Code (IRC) for "qualified tips" reported to employers via statements (under IRC Section 6053(a)).
• Qualified tips are defined as cash tips received from non-related parties, in jobs without employee ownership stakes, and in traditional tipped occupations such as cosmetology (hair and beauty services), hospitality (hotels and lodging), food and beverage service (restaurants and bars), parking attendants, and custodial services.
• The deduction is limited to individuals with adjusted gross income (AGI, a measure of total income minus certain adjustments) under $112,500 per year.
• This deduction is available even to non-itemizers (taxpayers who take the standard deduction instead of listing expenses).
• It is not treated as a "miscellaneous itemized deduction" (which has restrictions) and is exempt from the overall limit on itemized deductions.
• The U.S. Treasury Secretary must adjust withholding tables and procedures to account for this deduction, reducing taxes withheld from paychecks.

• Effective Dates:
• FLSA changes (minimum wage repeal) apply immediately upon enactment.
• Tax deduction changes apply to taxable years beginning after December 31, 2025.

Significant Changes to Existing Law

• FLSA Amendments: Ends the "tip credit" system, where employers could pay tipped workers as little as $2.13 per hour federally (with tips expected to cover the rest up to $7.25 minimum wage). Now, employers must pay the full $7.25 (or higher state minimum if applicable) directly, treating tips as additional income.
• IRC Amendments: Creates a new above-the-line deduction (Section 224) specifically for cash tips, which did not exist before. This simplifies tax filing for tipped workers and excludes it from limitations on other deductions, making it more accessible than prior tip-related tax rules.

Potential Impacts

• On Citizens: Tipped workers (about 4 million in the U.S., mainly in service industries) would see higher guaranteed base pay, reducing income instability from fluctuating tips. The tax deduction could lower their federal income tax liability on tips by up to the full amount for qualifying individuals, potentially increasing take-home pay. However, non-qualifying higher-income tipped workers (over $112,500 AGI) get no deduction.
• On Government Agencies: The Department of Labor (DOL) would enforce higher wage payments, possibly increasing oversight and complaints in industries like restaurants. The Internal Revenue Service (IRS) would administer the new deduction, update forms and withholding (adding administrative costs) but potentially boosting tax compliance through reported tips.
• On Businesses: Employers in tipped sectors face higher labor costs (estimated $15-35 billion annually nationwide), which could lead to price increases, reduced hiring, or automation. No direct impact on international relations, as this is a domestic labor and tax policy.

Main Stakeholders Affected

• Tipped Employees: Primary beneficiaries through higher base wages and tax savings; includes servers, bartenders, hotel staff, hair stylists, and valets.
• Employers in Service Industries: Bear increased payroll costs; particularly affects restaurants, hotels, and salons, with small businesses potentially facing the largest relative burden.
• Government Entities: DOL for wage enforcement; IRS and Treasury for tax administration.
• Consumers: May see higher prices for services like dining out due to passed-on costs.

Notable Legal, Constitutional, or Political Implications

• Legal: Strengthens FLSA protections against wage theft by removing tip credit loopholes, potentially leading to more lawsuits under updated penalties. The tax deduction aligns with IRC goals of simplifying taxes for low-wage workers but introduces income limits that could face challenges if seen as discriminatory.
• Constitutional: No apparent conflicts; it expands federal labor standards under Congress's Commerce Clause authority (regulating interstate commerce, including service industries).
• Political: Could reduce poverty among tipped workers (disproportionately women and minorities) but spark debate over business costs and federal overreach into state wage laws. Referred to House Committees on Ways and Means (taxes) and Education and Workforce (labor), indicating bipartisan or divided support potential given cosponsors from both parties.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Horsford, Steven [D-NV-4]

Cosponsors (30)

Rep. Norcross, Donald [D-NJ-1], Rep. Titus, Dina [D-NV-1], Rep. Lee, Susie [D-NV-3], Rep. Cleaver, Emanuel [D-MO-5], Rep. Ramirez, Delia C. [D-IL-3], Rep. McIver, LaMonica [D-NJ-10], Rep. Thompson, Bennie G. [D-MS-2], Rep. Velázquez, Nydia M. [D-NY-7], Rep. Boyle, Brendan F. [D-PA-2], Rep. Carter, Troy A. [D-LA-2], Rep. Kelly, Robin L. [D-IL-2], Rep. Schakowsky, Janice D. [D-IL-9], Rep. Foushee, Valerie P. [D-NC-4], Rep. Khanna, Ro [D-CA-17], Rep. Underwood, Lauren [D-IL-14], Rep. Soto, Darren [D-FL-9], Rep. Frost, Maxwell [D-FL-10], Rep. Tokuda, Jill N. [D-HI-2], Rep. Davis, Danny K. [D-IL-7], Rep. Brown, Shontel M. [D-OH-11], Rep. Bishop, Sanford D. [D-GA-2], Rep. Clarke, Yvette D. [D-NY-9], Rep. Gomez, Jimmy [D-CA-34], Rep. DelBene, Suzan K. [D-WA-1], Rep. Vasquez, Gabe [D-NM-2], Rep. McDonald Rivet, Kristen [D-MI-8], Rep. Ocasio-Cortez, Alexandria [D-NY-14], Rep. Pappas, Chris [D-NH-1], Rep. Kennedy, Timothy M. [D-NY-26], Rep. Sykes, Emilia Strong [D-OH-13]

Recent Actions

• 2025-02-13: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-02-13: Referred to the Committee on Ways and Means, and in addition to the Committee on Education and Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-02-13: Introduced in House
• 2025-02-13: Introduced in House

Bill Versions

• Tipped Income Protection and Support Act — issued 2025-02-13 — PDF (5 pages)