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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. TIPS RECEIVED FOR CERTAIN SERVICES NOT
SUBJECT 
TO 
INCOME 
OR 
EMPLOYMENT
TAXES.
(a) IN GENERAL.—Section 102 of the Internal Rev-
enue Code of 1986 (relating to gifts and inheritances) is
amended by adding at the end the following new sub-
section:
‘‘(d) TIPS RECEIVED FOR CERTAIN SERVICES.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), tips received by an individual for qualified serv-
ices performed by such individual shall be treated as
property transferred by gift.
‘‘(2) QUALIFIED
SERVICES.—For purposes of
this subsection, the term ‘qualified services’ means
cosmetology, hospitality (including lodging and food
and beverage services), recreation, taxi, newspaper
deliveries and shoe shine services.
‘‘(3) ANNUAL
LIMIT.—The amount excluded
from gross income for the taxable year by reason of
paragraph (1) with respect to each service provider
shall not exceed $10,000.
‘‘(4) EMPLOYEE TAXABLE ON AT LEAST MIN-
IMUM WAGE.—Paragraph (1) shall not apply to tips
received by an employee during any month to the ex-
tent that such tips—
‘‘(A) are deemed to have been paid by the
employer to the employee pursuant to section
3121(q) (without regard to whether such tips
are reported under section 6053), and
‘‘(B) do not exceed the excess of—
‘‘(i) the minimum wage rate applica-
ble to such individual under section 6(a)(1)
of the Fair Labor Standards Act of 1938
(determined without regard to section 3(m)
of such Act), over
‘‘(ii) the amount of the wages (exclud-
ing tips) paid by the employer to the em-
ployee during such month.
‘‘(5) TIPS.—For purposes of this title, the term
‘tips’ means a gratuity paid by an individual for
services performed for such individual (or for a
group which includes such individual) by another in-
dividual if such services are not provided pursuant
to an employment or similar contractual relationship
between such individuals.’’
(b) EXCLUSION FROM SOCIAL SECURITY TAXES.—
(1) Paragraph (12) of section 3121(a) of such
Code is amended to read as follows:
‘‘(12)(A) tips paid in any medium other than
cash;
‘‘(B) cash tips received by an employee in any
calendar month in the course of his employment by
an employer unless the amount of such cash tips is
$20 or more and then only to the extent includible
in gross income after the application of section
102(d);’’.
(2) Paragraph (10) of section 209(a) of the So-
cial Security Act is amended to read as follows:
‘‘(10)(A) tips paid in any medium other than
cash;
‘‘(B) cash tips received by an employee in any
calendar month in the course of his employment by
an employer unless the amount of such cash tips is
$20 or more and then only to the extent includible
in gross income after the application of section
102(d) of the Internal Revenue Code of 1986 for
such month;’’.
(3) Paragraph (3) of section 3231(e) of such
Code 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’ also includes cash tips received by an em-
ployee in any calendar month in the course of his
employment by an employer if the amount of such
cash tips is $20 or more and then only to the extent
includible in gross income after the application of
section 102(d).’’.
(c) EXCLUSION FROM UNEMPLOYMENT COMPENSA-
TION TAXES.—Subsection (s) of section 3306 of such
Code is amended to read as follows:
‘‘(s) TIPS NOT TREATED AS WAGES.—For purposes
of this chapter, the term ‘wages’ shall include tips received
in any month only to the extent includible in gross income
after the application of section 102(d) for such month.’’
(d) EXCLUSION FROM WAGE WITHHOLDING.—Para-
graph (16) of section 3401(a) of such Code is amended
to read as follows:
‘‘(16)(A) as tips in any medium other than
cash;
‘‘(B) as cash tips to an employee in any cal-
endar month in the course of his employment by an
employer unless the amount of such cash tips is $20
or more and then only to the extent includible in
gross income after the application of section
102(d);’’
(e) 
CONFORMING
AMENDMENT.—Sections
32(c)(2)(A)(i) and 220(b)(4)(A) of such Code are each
amended by striking ‘‘tips’’ and inserting ‘‘tips to the ex-
tent includible in gross income after the application of sec-
tion 102(d))’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to tips received after the calendar
month which includes the date of the enactment of this
Act.
Æ