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. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Tax Free Tips Act of 2011’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
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shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
SEC. 2. TIPS NOT SUBJECT TO INCOME OR EMPLOYMENT 
TAXES. 
(a) IN GENERAL.—Section 102 (relating to gifts and 
inheritances) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(d) TIPS.—For purposes of subsection (a), tips shall 
be treated as property transferred by gift.’’. 
(b) EXCLUSION FROM SOCIAL SECURITY TAXES.— 
(1) SOCIAL SECURITY TAXES.— 
(A) Paragraph (12) of section 3121(a) is 
amended to read as follows: 
‘‘(12) tips;’’. 
(B) Section 3121 is amended by striking 
subsection (q) (relating to tips included for both 
employee and employer taxes). 
(C) Subsection (a) of section 3102 is 
amended by striking ‘‘; and an employer who is 
furnished by an employee a written statement 
of tips (received in a calendar month) pursuant 
to section 6053(a) to which paragraph (12)(B) 
of section 3121(a) is applicable may deduct an 
amount equivalent to such tax with respect to 
such tips from any wages of the employee (ex-
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clusive of tips) under his control, even though 
at the time such statement is furnished the 
total amount of the tips included in statements 
furnished to the employer as having been re-
ceived by the employee in such calendar month 
in the course of his employment by such em-
ployer is less than $20’’. 
(D) Section 3102 is amended by striking 
subsection (c) (relating to special rule for tips). 
(E) Subsection (a) of section 3202 is 
amended by striking the second sentence. 
(2) TIER 1 RAILROAD RETIREMENT.— 
(A) Section 3202 is amended by striking 
subsection (c). 
(B) Paragraph (3) of section 3231(e) 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 ‘com-
pensation’ shall not include tips.’’. 
(C) Section 3231 is amended by striking 
subsection (h). 
(c) EXCLUSION FROM UNEMPLOYMENT COMPENSA-
TION TAXES.—Subsection (s) of section 3306 is amended 
to read as follows: 
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