H.R. 1314 — TIPS Act

This section establishes the short title of the Act as the “Tipped Income Protection and Support Act” or the “TIPS Act.”

This section repeals the separate minimum wage for tipped employees under the Fair Labor Standards Act of 1938 by requiring employers to pay tipped employees the minimum wage set in section 6(a)(1) and by providing that all tips belong to the employee, while still allowing tip pooling among employees who customarily and regularly receive tips. (Thus, employers may no longer use a tip credit to count tips toward the minimum wage, and tipped workers must receive the full federal minimum wage in cash wages.) This section also revises the Fair Labor Standards Act’s civil penalty provisions under 29 U.S.C. § 216 to replace references to “the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer” with “the sum of all such tips unlawfully used or kept by the employer,” thereby conforming the remedies for unlawful tip practices to the repeal of the tip credit.

This section establishes a new above-the-line deduction under section 224 of the Internal Revenue Code of 1986 for qualified tips received during the taxable year and reported to the employer under section 6053(a). The deduction is limited to individuals with adjusted gross income of $112,500 or less, and applies only to tips received from an unrelated party, from a business in which the worker has no ownership stake, and in occupations that traditionally and customarily receive tips, including cosmetology, hospitality, food and beverage service, parking attendants, and custodial service. This section also allows the deduction for taxpayers who do not itemize by adding it to the list of deductions allowed under section 63(b), and excludes it from the miscellaneous itemized deduction rules and the overall limitation on itemized deductions under sections 67 and 68. It directs the Secretary of the Treasury to modify income tax withholding tables and procedures under section 3402(a) to account for the new deduction. The amendments apply to taxable years beginning after December 31, 2025.