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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‘‘(s) TIPS NOT TREATED AS WAGES.—For purposes 
of this chapter, the term ‘wages’ shall not include tips.’’. 
(d) EXCLUSION FROM WAGE WITHHOLDING.— 
(1) Paragraph (16) of section 3401(a) is 
amended to read as follows: 
‘‘(16) tips;’’. 
(2) Section 3401 is amended by striking sub-
section (f). 
(3) Section 3402 is amended by striking sub-
section (k). 
(e) TIPS DEFINED.—Subsection (a) of section 7701 
(relating to definitions) is amended by adding at the end 
the following new paragraph: 
‘‘(50) TIPS.—The term ‘tips’ includes any gra-
tuity provided to a salaried employee by a customer 
or client of the employer’s business.’’. 
(f) CONFORMING AMENDMENTS.— 
(1) Clause (i) of section 32(c)(2)(A) (defining 
earned income) is amended by striking ‘‘tips,’’. 
(2)(A) Section 45B (relating to credit for por-
tion of employer social security taxes paid with re-
spect to employee cash tips) is hereby repealed. 
(B) The table of sections for subpart D of part 
IV of subchapter A of chapter 1 is amended by 
striking the item relating to section 45B. 
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(C) Subsection (b) of section 38 is amended by 
striking paragraph (11) and by redesignating the 
succeeding paragraphs accordingly. 
(D) Subsection (c) of section 196 is amended 
by striking paragraph (8) and by redesignating the 
succeeding paragraphs accordingly. 
(E) Subsection (m) of section 6501 is amended 
by striking ‘‘45B,’’. 
(3) Section 220(b)(4)(A) is amended by strik-
ing ‘‘tips,’’. 
(4) Section 451 is amended by striking sub-
section (c). 
(5) Section 6001 is amended by striking the 
last sentence. 
(6) Section 6041 is amended by striking sub-
section (e). 
(7) Subsection (c) of section 6041A is amended 
by striking ‘‘, 6052, or 6053’’ and inserting ‘‘or 
6052’’. 
(8) Subsection (a) of section 6051 is amended 
by striking ‘‘In the case of tips received by an em-
ployee in the course of his employment, the amounts 
required to be shown by paragraphs (3) and (5) 
shall include only such tips as are included in state-
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ments furnished to the employer pursuant to section 
6053(a).’’. 
(9) Section 6053 (relating to tip reporting) is 
hereby repealed. 
(10) The table of sections for subpart C of part 
III of subchapter A of chapter 61 is amended by 
striking the item relating to section 6053. 
(11) Section 6652 is amended by striking sub-
section (b) (relating to failure to report tips). 
(12) Section 6674 (relating to fraudulent state-
ment or failure to furnish statement to employee) is 
amended by striking ‘‘or 6053(b)’’ each place it ap-
pears. 
(13) Subparagraph (B) of section 6724(d)(1) is 
amended by striking clause (xv) and redesignating 
the succeeding clauses accordingly. 
(14) Paragraph (2) of section 6724(d) is 
amended by striking subparagraph (V) and redesig-
nating the succeeding subparagraphs accordingly. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to tips received in calendar months 
beginning after the date of the enactment of this Act. 
Æ 
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