No tax on tips

(a) Deduction allowed Part VII of subchapter B of chapter 1 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section: 224. Qualified tips (a) In general There shall be allowed as a deduction an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the individual pursuant to section 6041(d)(3), 6041A(e)(3), 6050W(f)(2), 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor). (b) Tips received in course of trade or business In the case of qualified tips received by an individual during any taxable year in the course of any trade or business of such individual, such qualified tips shall be taken into account under subsection (a) only to the extent that the gross receipts of the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of— (1) cost of goods sold that are allocable to such receipts, plus (2) other expenses, losses, or deductions (other than the deduction allowed under this section), which are properly allocable to such receipts. (c) Qualified tips For purposes of this section— (1) In general The term qualified tip means any cash tip received by an individual in an occupation which traditionally and customarily received tips on or before December 31, 2024, as provided by the Secretary. (2) Exclusions Such term shall not include any amount received by an individual unless— (A) such amount is paid voluntarily without any consequence in the event of nonpayment, is not the subject of negotiation, and is determined by the payor, (B) the trade or business in the course of which the individual receives such amount is not a specified service trade or business (as defined in section 199A(d)(2)), (C) such individual does not receive earned income (within the meaning of section 32) in excess of the dollar amount in effect under section 414(q)(1)(B)(i) for the calendar year in which the taxable year begins, and (D) such other requirements as may be established by the Secretary in regulations or other guidance are satisfied. (d) Social security number required (1) In general No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year— (A) such individual’s social security number, and (B) if the individual is married, the social security number of such individual’s spouse. (2) Married individuals Rules similar to the rules of section 32(d) shall apply to this section. (3) Social security number defined For purposes of paragraph (1), the term social security number shall have the meaning given such term in section 24(h)(7). (e) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary to prevent reclassification of income as qualified tips, including regulations or other guidance to prevent abuse of the deduction allowed by this section. (f) Termination No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.. (b) Deduction allowed to non-itemizers Section 63(b) is amended by striking and at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting and, and by adding at the end the following new paragraph: (5) the deduction provided in section 224.. (c) Omission of correct social security number treated as mathematical or clerical error Section 6213(g)(2), as amended by the preceding provisions of this Act, is amended by striking and at the end of subparagraph (V), by striking the period at the end of subparagraph (W) and inserting, and, and by inserting after subparagraph (W) the following new subparagraph: (X) an omission of a correct social security number required under section 224(d) (relating to deduction for qualified tips).. (d) Exclusion from qualified business income Section 199A(c)(4) is amended by striking and at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting, and, and by adding at the end the following new subparagraph: (D) any amount with respect to which a deduction is allowable to the taxpayer under section 224(a) for the taxable year.. (e) Extension of tip credit to beauty service business (1) In general Section 45B(b)(2) is amended to read as follows: (2) Application only to certain lines of business In applying paragraph (1) there shall be taken into account only tips received from customers or clients in connection with the following services: (A) The providing, delivering, or serving of food or beverages for consumption, if the tipping of employees delivering or serving food or beverages by customers is customary. (B) The providing of any of the following services to a customer or client if the tipping of employees providing such services is customary: (i) Barbering and hair care. (ii) Nail care. (iii) Esthetics. (iv) Body and spa treatments.. (2) Credit determined with respect to minimum wage in effect Section 45B(b)(1)(B) is amended— (A) by striking as in effect on January 1, 2007, and, and (B) by inserting, and in the case of food or beverage establishments, as in effect on January 1, 2007 after without regard to section 3(m) of such Act. (f) Reporting requirements (1) Returns for payments made in the course of a trade or business (A) Statement furnished to Secretary Section 6041(a) is amended by inserting (including a separate accounting of any such amounts properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1)) after such gains, profits, and income. (B) Statement furnished to payee Section 6041(d) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting, and, and by inserting after paragraph (2) the following new paragraph: (3) in the case of compensation to non-employees, the portion of payments that have been properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1).. (2) Returns for payments made for services and direct sales (A) Statement furnished to Secretary Section 6041A(a) is amended by inserting (including a separate accounting of any such amounts properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1)) after amount of such payments. (B) Statement furnished to payee Section 6041A(e) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting, and, and by inserting after paragraph (2) the following new paragraph: (3) the portion of payments that have been properly designated as tips and whether such tips are received in an occupation described in section 224(c)(1).. (3) Returns relating to third party settlement organizations (A) Statement furnished to Secretary Section 6050W(a) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting and, and by adding at the end the following new paragraph: (3) in the case of a third party settlement organization, the portion of reportable payment transactions that have been properly designated by payors as tips and whether such tips are received in an occupation described in section 224(c)(1).. (B) Statement furnished to payee Section 6050W(f)(2) is amended by inserting (including a separate accounting of any such amounts that have been properly designated by payors as tips and whether such tips are received in an occupation described in section 224(c)(1)) after reportable payment transactions. (4) Returns related to wages Section 6051(a) is amended by striking and at the end of paragraph (16), by striking the period at the end of paragraph (17) and inserting, and, and by inserting after paragraph (17) the following new paragraph: (18) the total amount of tips reported by the employee under section 6053(a).. (g) Clerical amendment The table of sections for part VII of subchapter B of chapter 1 is amended by redesignating the item relating to section 224 as relating to section 225 and by inserting after the item relating to section 223 the following new item: Sec. 224. Qualified tips.. (h) Published list of occupations traditionally receiving tips Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s delegate) shall publish a list of occupations which traditionally and customarily received tips on or before December 31, 2024, for purposes of section 224(c)(1) (as added by subsection (a)). (i) Withholding The Secretary of the Treasury (or the Secretary’s delegate) shall modify the tables and procedures prescribed under section 3402(a) to take into account the deduction allowed under section 224 (as added by this Act). (j) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2024.