I 
109TH CONGRESS 
2D SESSION 
H. R. 5917 
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 
JULY 27, 2006 
Mr. SODREL (for himself, Mr. HUNTER, Mr. MCHENRY, Mr. ROHRABACHER, 
Mr. KUHL of New York, Mrs. BLACKBURN, Mr. PENCE, Mr. SIMMONS, 
Mr. GERLACH, Mr. PAUL, and Ms. HARRIS) 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: 
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‘‘(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) 
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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);’’. 
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(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: 
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‘‘(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 
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