I

106TH CONGRESS

1ST SESSION H. R. 1921

To provide that the provision of the Fair Labor Standards Act of 1938

on the accounting of tips in determining the wage of tipped employees

shall preempt any State or local provision precluding a tip credit or

requiring a tip credit less than the tip credit provided under such Act

and 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

MAY 25, 1999

Mr. BILBRAY (for himself and Mr. MCKEON, Mr. CAMPBELL, Mr. COX, and

Mr. EHRLICH) introduced the following bill; which was referred to the

Committee on Ways and Means, and in addition to the Committee on

Education and the 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

A BILL

To provide that the provision of the Fair Labor Standards

Act of 1938 on the accounting of tips in determining

the wage of tipped employees shall preempt any State

or local provision precluding a tip credit or requiring

a tip credit less than the tip credit provided under such

Act and 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.
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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 This Act may be cited as the ‘‘Tip Credit Protection

5 Act of 1999’’.

6 SEC. 2. PREEMPTION.

7 Section 18 of the Fair Labor Standards Act of 1938

8 (29 U.S.C. 218) is amended by adding at the end the fol9 lowing:

10 ‘‘(c) No law, ordinance, regulation, or order estab11 lished or enforced by a State or political subdivision of

12 a State shall—

13 ‘‘(1) preclude a tip credit, or

14 ‘‘(2) prohibit an employer from applying a tip

15 credit,

16 as authorized by section 3(m) if the employer pays cash

17 wages to tipped employees that are not less than the min18 imum cash wage required by such law, ordinance, regula19 tion, or order of a State or political subdivision of a State

20 on the date of the enactment of this subsection.’’.

21 SEC. 3. TIPS RECEIVED FOR CERTAIN SERVICES NOT SUB22 JECT TO INCOME OR EMPLOYMENT TAXES.

23 (a) IN GENERAL.—Section 102 of the Internal Rev24 enue Code of 1986 (relating to gifts and inheritances) is
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1 amended by adding at the end the following new sub2 section:

3 ‘‘(d) TIPS RECEIVED FOR CERTAIN SERVICES.—

4 ‘‘(1) IN GENERAL.—For purposes of subsection

5 (a), tips received by an individual for qualified serv6 ices performed by such individual shall be treated as

7 property transferred by gift.

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

9 this subsection, the term ‘qualified services’ means

10 cosmetology, hospitality (including lodging and food

11 and beverage services), recreation, taxi, newspaper

12 deliveries and shoe shine services.

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

14 from gross income for the taxable year by reason of

15 paragraph (1) with respect to each service provider

16 shall not exceed $10,000.

17 ‘‘(4) EMPLOYEE TAXABLE ON AT LEAST MIN18 IMUM WAGE.—Paragraph (1) shall not apply to tips

19 received by an employee during any month to the ex20 tent that such tips—

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

22 employer to the employee pursuant to section

23 3121(q) (without regard to whether such tips

24 are reported under section 6053), and

25 ‘‘(B) do not exceed the excess of—
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1 ‘‘(i) the minimum wage rate applica2 ble to such individual under section 6(a)(1)

3 of the Fair Labor Standards Act of 1938

4 (determined without regard to section 3(m)

5 of such Act), over

6 ‘‘(ii) the amount of the wages (exclud7 ing tips) paid by the employer to the em8 ployee during such month.

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

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

11 services performed for such individual (or for a

12 group which includes such individual) by another in13 dividual if such services are not provided pursuant

14 to an employment or similar contractual relationship

15 between such individuals.’’

16 (b) EXCLUSION FROM SOCIAL SECURITY TAXES.—

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

18 Code is amended to read as follows:

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

20 cash;

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

22 calendar month in the course of his employment by

23 an employer unless the amount of such cash tips is

24 $20 or more and then only to the extent includible
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1 in gross income after the application of section

2 102(d);’’.

3 (2) Paragraph (10) of section 209(a) of the So4 cial Security Act is amended to read as follows:

5 ‘‘(10)(A) tips paid in any medium other than

6 cash;

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

8 calendar month in the course of his employment by

9 an employer unless the amount of such cash tips is

10 $20 or more and then only to the extent includible

11 in gross income after the application of section

12 102(d) of the Internal Revenue Code of 1986 for

13 such month;’’.

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

15 Code is amended to read as follows:

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

17 by section 3201 and other provisions of this chapter

18 insofar as they relate to such taxes, the term ‘com19 pensation’ also includes cash tips received by an em20 ployee in any calendar month in the course of his

21 employment by an employer if the amount of such

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

23 includible in gross income after the application of

24 section 102(d).’’.
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1 (c) EXCLUSION FROM UNEMPLOYMENT COMPENSA2 TION TAXES.—Subsection (s) of section 3306 of such

3 Code is amended to read as follows:

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

5 of this chapter, the term ‘wages’ shall include tips received

6 in any month only to the extent includible in gross income

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

8 (d) EXCLUSION FROM WAGE WITHHOLDING.—Para9 graph (16) of section 3401(a) of such Code is amended

10 to read as follows:

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

12 cash;

13 ‘‘(B) as cash tips to an employee in any cal14 endar month in the course of his employment by an

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

16 or more and then only to the extent includible in

17 gross income after the application of section

18 102(d);’’

19 (e) CONFORMING AMENDMENT.—Sections

20 32(c)(2)(A)(i) and 220(b)(4)(A) of such Code are each

21 amended by striking ‘‘tips’’ and inserting ‘‘tips to the ex22 tent includible in gross income after the application of sec23 tion 102(d))’’.

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

25 this section shall apply to tips received after the calendar
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1 month which includes the date of the enactment of this

2 Act.

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