SECTION 1. TIPS RECEIVED FOR CERTAIN SERVICES NOT SUBJECT TO INCOME OR 
              EMPLOYMENT TAXES.

    (a) In General.--Section 102 of the Internal Revenue Code of 1986 
(relating to gifts and inheritances) is amended by adding at the end 
the following new subsection:
    ``(d) Tips Received for Certain Services.--
            ``(1) In general.--For purposes of subsection (a), tips 
        received by an individual for qualified services performed by 
        such individual shall be treated as property transferred by 
        gift.
            ``(2) Qualified services.--For purposes of this subsection, 
        the term `qualified services' means cosmetology, hospitality 
        (including lodging and food and beverage services), recreation, 
        taxi, newspaper deliveries and shoe shine services.
            ``(3) Annual limit.--The amount excluded from gross income 
        for the taxable year by reason of paragraph (1) with respect to 
        each service provider shall not exceed $10,000.
            ``(4) Employee taxable on at least minimum wage.--Paragraph 
        (1) shall not apply to tips received by an employee during any 
        month to the extent that such tips--
                    ``(A) are deemed to have been paid by the employer 
                to the employee pursuant to section 3121(q) (without 
                regard to whether such tips are reported under section 
                6053), and
                    ``(B) do not exceed the excess of--
                            ``(i) the minimum wage rate applicable to 
                        such individual under section 6(a)(1) of the 
                        Fair Labor Standards Act of 1938 (determined 
                        without regard to section 3(m) of such Act), 
                        over
                            ``(ii) the amount of the wages (excluding 
                        tips) paid by the employer to the employee 
                        during such month.
            ``(5) Tips.--For purposes of this title, the term `tips' 
        means a gratuity paid by an individual for services performed 
        for such individual (or for a group which includes such 
        individual) by another individual if such services are not 
        provided pursuant to an employment or similar contractual 
        relationship between such individuals.''
    (b) Exclusion From Social Security Taxes.--
            (1) Paragraph (12) of section 3121(a) of such Code is 
        amended to read as follows:
            ``(12)(A) tips paid in any medium other than cash;
            ``(B) cash tips received by an employee in any calendar 
        month in the course of his employment by an employer unless the 
        amount of such cash tips is $20 or more and then only to the 
        extent includible in gross income after the application of 
        section 102(d);''.
            (2) Paragraph (10) of section 209(a) of the Social Security 
        Act is amended to read as follows:
            ``(10)(A) tips paid in any medium other than cash;
            ``(B) cash tips received by an employee in any calendar 
        month in the course of his employment by an employer unless the 
        amount of such cash tips is $20 or more and then only to the 
        extent includible in gross income after the application of 
        section 102(d) of the Internal Revenue Code of 1986 for such 
        month;''.
            (3) Paragraph (3) of section 3231(e) of such Code is 
        amended to read as follows:
            ``(3) Solely for purposes of the taxes imposed by section 
        3201 and other provisions of this chapter insofar as they 
        relate to such taxes, the term `compensation' also includes 
        cash tips received by an employee in any calendar month in the 
        course of his employment by an employer if the amount of such 
        cash tips is $20 or more and then only to the extent includible 
        in gross income after the application of section 102(d).''.
    (c) Exclusion From Unemployment Compensation Taxes.--Subsection (s) 
of section 3306 of such Code is amended to read as follows:
    ``(s) Tips Not Treated as Wages.--For purposes of this chapter, the 
term `wages' shall include tips received in any month only to the 
extent includible in gross income after the application of section 
102(d) for such month.''
    (d) Exclusion From Wage Withholding.--Paragraph (16) of section 
3401(a) of such Code is amended to read as follows:
            ``(16)(A) as tips in any medium other than cash;
            ``(B) as cash tips to an employee in any calendar month in 
        the course of his employment by an employer unless the amount 
        of such cash tips is $20 or more and then only to the extent 
        includible in gross income after the application of section 
        102(d);''
    (e) Conforming Amendment.--Sections 32(c)(2)(A)(i) and 220(b)(4)(A) 
of such Code are each amended by striking ``tips'' and inserting ``tips 
to the extent includible in gross income after the application of 
section 102(d))''.
    (f) Effective Date.--The amendments made by this section shall 
apply to tips received after the calendar month which includes the date 
of the enactment of this Act.
Amends the Internal Revenue Code to make revisions concerning the treatment of tip income for specified services, including treating a limited amount of tips as property transferred by gift.
To amend the Internal Revenue Code of 1986 to provide that tips received for certain services shall not be subject to income or employment taxes.