I 

112TH CONGRESS 

1ST SESSION H. R. 1139 

To amend the Internal Revenue Code of 1986 to provide that tips shall 

not be subject to income or employment taxes. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 16, 2011 

Mr. PAUL introduced the following bill; which was referred to the Committee 

on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

that tips shall not be subject to income or employment taxes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Tax Free Tips Act of 2011’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 


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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 SEC. 2. TIPS NOT SUBJECT TO INCOME OR EMPLOYMENT 

4 TAXES. 

5 (a) IN GENERAL.—Section 102 (relating to gifts and 

6 inheritances) is amended by adding at the end the fol7 lowing new subsection: 

8 ‘‘(d) TIPS.—For purposes of subsection (a), tips shall 

9 be treated as property transferred by gift.’’. 

10 (b) EXCLUSION FROM SOCIAL SECURITY TAXES.— 

11 (1) SOCIAL SECURITY TAXES.— 

12 (A) Paragraph (12) of section 3121(a) is 

13 amended to read as follows: 

14 ‘‘(12) tips;’’. 

15 (B) Section 3121 is amended by striking 

16 subsection (q) (relating to tips included for both 

17 employee and employer taxes). 

18 (C) Subsection (a) of section 3102 is 

19 amended by striking ‘‘; and an employer who is 

20 furnished by an employee a written statement 

21 of tips (received in a calendar month) pursuant 

22 to section 6053(a) to which paragraph (12)(B) 

23 of section 3121(a) is applicable may deduct an 

24 amount equivalent to such tax with respect to 

25 such tips from any wages of the employee (exVerDate Mar 15 2010 22:34 Mar 17, 2011 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1139.IH H1139

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1 clusive of tips) under his control, even though 

2 at the time such statement is furnished the 

3 total amount of the tips included in statements 

4 furnished to the employer as having been re5 ceived by the employee in such calendar month 

6 in the course of his employment by such em7 ployer is less than $20’’. 

8 (D) Section 3102 is amended by striking 

9 subsection (c) (relating to special rule for tips). 

10 (E) Subsection (a) of section 3202 is 

11 amended by striking the second sentence. 

12 (2) TIER 1 RAILROAD RETIREMENT.— 

13 (A) Section 3202 is amended by striking 

14 subsection (c). 

15 (B) Paragraph (3) of section 3231(e) is 

16 amended to read as follows: 

17 ‘‘(3) Solely for purposes of the taxes imposed 

18 by section 3201 and other provisions of this chapter 

19 insofar as they relate to such taxes, the term ‘com20 pensation’ shall not include tips.’’. 

21 (C) Section 3231 is amended by striking 

22 subsection (h). 

23 (c) EXCLUSION FROM UNEMPLOYMENT COMPENSA24 TION TAXES.—Subsection (s) of section 3306 is amended 

25 to read as follows: 


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1 ‘‘(s) TIPS NOT TREATED AS WAGES.—For purposes 

2 of this chapter, the term ‘wages’ shall not include tips.’’. 

3 (d) EXCLUSION FROM WAGE WITHHOLDING.— 

4 (1) Paragraph (16) of section 3401(a) is 

5 amended to read as follows: 

6 ‘‘(16) tips;’’. 

7 (2) Section 3401 is amended by striking sub8 section (f). 

9 (3) Section 3402 is amended by striking sub10 section (k). 

11 (e) TIPS DEFINED.—Subsection (a) of section 7701 

12 (relating to definitions) is amended by adding at the end 

13 the following new paragraph: 

14 ‘‘(51) TIPS.—The term ‘tips’ includes any gra15 tuity provided to a salaried employee by a customer 

16 or client of the employer’s business.’’. 

17 (f) CONFORMING AMENDMENTS.— 

18 (1) Clause (i) of section 32(c)(2)(A) (defining 

19 earned income) is amended by striking ‘‘tips,’’. 

20 (2)(A) Section 45B (relating to credit for por21 tion of employer social security taxes paid with re22 spect to employee cash tips) is hereby repealed. 

23 (B) The table of sections for subpart D of part 

24 IV of subchapter A of chapter 1 is amended by 

25 striking the item relating to section 45B. 


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1 (C) Subsection (b) of section 38 is amended by 

2 striking paragraph (11) and by redesignating the 

3 succeeding paragraphs accordingly. 

4 (D) Subsection (c) of section 196 is amended 

5 by striking paragraph (8) and by redesignating the 

6 succeeding paragraphs accordingly. 

7 (E) Subsection (m) of section 6501 is amended 

8 by striking ‘‘45B,’’. 

9 (3) Section 220(b)(4)(A) is amended by strik10 ing ‘‘tips,’’. 

11 (4) Section 451 is amended by striking sub12 section (c). 

13 (5) Section 6001 is amended by striking the 

14 last sentence. 

15 (6) Section 6041 is amended by striking sub16 section (e). 

17 (7) Subsection (c) of section 6041A is amended 

18 by striking ‘‘, 6052, or 6053’’ and inserting ‘‘or 

19 6052’’. 

20 (8) Subsection (a) of section 6051 is amended 

21 by striking ‘‘In the case of tips received by an em22 ployee in the course of his employment, the amounts 

23 required to be shown by paragraphs (3) and (5) 

24 shall include only such tips as are included in stateVerDate Mar 15 2010 22:34 Mar 17, 2011 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1139.IH H1139

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1 ments furnished to the employer pursuant to section 

2 6053(a).’’. 

3 (9) Section 6053 (relating to tip reporting) is 

4 hereby repealed. 

5 (10) The table of sections for subpart C of part 

6 III of subchapter A of chapter 61 is amended by 

7 striking the item relating to section 6053. 

8 (11) Section 6652 is amended by striking sub9 section (b) (relating to failure to report tips). 

10 (12) Section 6674 (relating to fraudulent state11 ment or failure to furnish statement to employee) is 

12 amended by striking ‘‘or 6053(b)’’ each place it ap13 pears. 

14 (13) Subparagraph (B) of section 6724(d)(1) is 

15 amended by striking clause (xvi) and redesignating 

16 the succeeding clauses accordingly. 

17 (14) Paragraph (2) of section 6724(d) is 

18 amended by striking subparagraph (X) and redesig19 nating the succeeding subparagraphs accordingly. 

20 (g) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to tips received in calendar months 

22 beginning after the date of the enactment of this Act. 

Æ 


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