I

106TH CONGRESS

1ST SESSION H. R. 1329

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.

IN THE HOUSE OF REPRESENTATIVES

MARCH 25, 1999

Mr. HUNTER (for himself and Mrs. BONO) 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 received for certain services 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. TIPS RECEIVED FOR CERTAIN SERVICES NOT

4 SUBJECT TO INCOME OR EMPLOYMENT

5 TAXES.

6 (a) IN GENERAL.—Section 102 of the Internal Rev7 enue Code of 1986 (relating to gifts and inheritances) is

8 amended by adding at the end the following new sub9 section:

10 ‘‘(d) TIPS RECEIVED FOR CERTAIN SERVICES.—
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1 ‘‘(1) IN GENERAL.—For purposes of subsection

2 (a), tips received by an individual for qualified serv3 ices performed by such individual shall be treated as

4 property transferred by gift.

5 ‘‘(2) QUALIFIED SERVICES.—For purposes of

6 this subsection, the term ‘qualified services’ means

7 cosmetology, hospitality (including lodging and food

8 and beverage services), recreation, taxi, newspaper

9 deliveries and shoe shine services.

10 ‘‘(3) ANNUAL LIMIT.—The amount excluded

11 from gross income for the taxable year by reason of

12 paragraph (1) with respect to each service provider

13 shall not exceed $10,000.

14 ‘‘(4) EMPLOYEE TAXABLE ON AT LEAST MIN15 IMUM WAGE.—Paragraph (1) shall not apply to tips

16 received by an employee during any month to the ex17 tent that such tips—

18 ‘‘(A) are deemed to have been paid by the

19 employer to the employee pursuant to section

20 3121(q) (without regard to whether such tips

21 are reported under section 6053), and

22 ‘‘(B) do not exceed the excess of—

23 ‘‘(i) the minimum wage rate applica24 ble to such individual under section 6(a)(1)

25 of the Fair Labor Standards Act of 1938
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1 (determined without regard to section 3(m)

2 of such Act), over

3 ‘‘(ii) the amount of the wages (exclud4 ing tips) paid by the employer to the em5 ployee during such month.

6 ‘‘(5) TIPS.—For purposes of this title, the term

7 ‘tips’ means a gratuity paid by an individual for

8 services performed for such individual (or for a

9 group which includes such individual) by another in10 dividual if such services are not provided pursuant

11 to an employment or similar contractual relationship

12 between such individuals.’’

13 (b) EXCLUSION FROM SOCIAL SECURITY TAXES.—

14 (1) Paragraph (12) of section 3121(a) of such

15 Code is amended to read as follows:

16 ‘‘(12)(A) tips paid in any medium other than

17 cash;

18 ‘‘(B) cash tips received by an employee in any

19 calendar month in the course of his employment by

20 an employer unless the amount of such cash tips is

21 $20 or more and then only to the extent includible

22 in gross income after the application of section

23 102(d);’’.

24 (2) Paragraph (10) of section 209(a) of the So25 cial Security Act is amended to read as follows:
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1 ‘‘(10)(A) tips paid in any medium other than

2 cash;

3 ‘‘(B) cash tips received by an employee in any

4 calendar month in the course of his employment by

5 an employer unless the amount of such cash tips is

6 $20 or more and then only to the extent includible

7 in gross income after the application of section

8 102(d) of the Internal Revenue Code of 1986 for

9 such month;’’.

10 (3) Paragraph (3) of section 3231(e) of such

11 Code is amended to read as follows:

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

13 by section 3201 and other provisions of this chapter

14 insofar as they relate to such taxes, the term ‘com15 pensation’ also includes cash tips received by an em16 ployee in any calendar month in the course of his

17 employment by an employer if the amount of such

18 cash tips is $20 or more and then only to the extent

19 includible in gross income after the application of

20 section 102(d).’’.

21 (c) EXCLUSION FROM UNEMPLOYMENT COMPENSA22 TION TAXES.—Subsection (s) of section 3306 of such

23 Code is amended to read as follows:

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

25 of this chapter, the term ‘wages’ shall include tips received
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1 in any month only to the extent includible in gross income

2 after the application of section 102(d) for such month.’’

3 (d) EXCLUSION FROM WAGE WITHHOLDING.—Para4 graph (16) of section 3401(a) of such Code is amended

5 to read as follows:

6 ‘‘(16)(A) as tips in any medium other than

7 cash;

8 ‘‘(B) as cash tips to an employee in any cal9 endar month in the course of his employment by an

10 employer unless the amount of such cash tips is $20

11 or more and then only to the extent includible in

12 gross income after the application of section

13 102(d);’’

14 (e) CONFORMING AMENDMENT.—Sections

15 32(c)(2)(A)(i) and 220(b)(4)(A) of such Code are each

16 amended by striking ‘‘tips’’ and inserting ‘‘tips to the ex17 tent includible in gross income after the application of sec18 tion 102(d))’’.

19 (f) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to tips received after the calendar

21 month which includes the date of the enactment of this

22 Act.

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