I

107TH CONGRESS

1ST SESSION H. R. 1274

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 28, 2001

Mr. HUNTER (for himself, Mr. GOSS, Mr. GILCHREST, Ms. ROS-LEHTINEN,

Mr. RAMSTAD, Mrs. BONO, Mr. CRANE, and Ms. BERKLEY) 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:
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1 ‘‘(d) TIPS RECEIVED FOR CERTAIN SERVICES.—

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

3 (a), tips received by an individual for qualified serv4 ices performed by such individual shall be treated as

5 property transferred by gift.

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

7 this subsection, the term ‘qualified services’ means

8 cosmetology, hospitality (including lodging and food

9 and beverage services), recreation, taxi, newspaper

10 deliveries and shoe shine services.

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

12 from gross income for the taxable year by reason of

13 paragraph (1) with respect to each service provider

14 shall not exceed $10,000.

15 ‘‘(4) EMPLOYEE TAXABLE ON AT LEAST MIN16 IMUM WAGE.—Paragraph (1) shall not apply to tips

17 received by an employee during any month to the ex18 tent that such tips—

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

20 employer to the employee pursuant to section

21 3121(q) (without regard to whether such tips

22 are reported under section 6053), and

23 ‘‘(B) do not exceed the excess of—

24 ‘‘(i) the minimum wage rate applica25 ble to such individual under section 6(a)(1)
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1 of the Fair Labor Standards Act of 1938

2 (determined without regard to section 3(m)

3 of such Act), over

4 ‘‘(ii) the amount of the wages (exclud5 ing tips) paid by the employer to the em6 ployee during such month.

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

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

9 services performed for such individual (or for a

10 group which includes such individual) by another in11 dividual if such services are not provided pursuant

12 to an employment or similar contractual relationship

13 between such individuals.’’

14 (b) EXCLUSION FROM SOCIAL SECURITY TAXES.—

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

16 Code is amended to read as follows:

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

18 cash;

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

20 calendar month in the course of his employment by

21 an employer unless the amount of such cash tips is

22 $20 or more and then only to the extent includible

23 in gross income after the application of section

24 102(d);’’.
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1 (2) Paragraph (10) of section 209(a) of the So2 cial Security Act is amended to read as follows:

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

4 cash;

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

6 calendar month in the course of his employment by

7 an employer unless the amount of such cash tips is

8 $20 or more and then only to the extent includible

9 in gross income after the application of section

10 102(d) of the Internal Revenue Code of 1986 for

11 such month;’’.

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

13 Code is amended to read as follows:

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

15 by section 3201 and other provisions of this chapter

16 insofar as they relate to such taxes, the term ‘com17 pensation’ also includes cash tips received by an em18 ployee in any calendar month in the course of his

19 employment by an employer if the amount of such

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

21 includible in gross income after the application of

22 section 102(d).’’.

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

25 Code is amended 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 include tips received

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

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

5 (d) EXCLUSION FROM WAGE WITHHOLDING.—Para6 graph (16) of section 3401(a) of such Code is amended

7 to read as follows:

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

9 cash;

10 ‘‘(B) as cash tips to an employee in any cal11 endar month in the course of his employment by an

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

13 or more and then only to the extent includible in

14 gross income after the application of section

15 102(d);’’

16 (e) CONFORMING AMENDMENT.—Sections

17 32(c)(2)(A)(i) and 220(b)(4)(A) of such Code are each

18 amended by striking ‘‘tips’’ and inserting ‘‘tips to the ex19 tent includible in gross income after the application of sec20 tion 102(d))’’.

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

22 this section shall apply to tips received after the calendar

23 month which includes the date of the enactment of this

24 Act.

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