Modification of deduction for cash tips

(a) Made permanent Section 224 is amended by striking subsection (h). (b) Application of limitation on individual basis Section 224(b)(1) is amended by inserting to an individual after amount allowed as a deduction under this section. (c) Treatment of automatic gratuities Section 224(d) is amended by adding at the end the following new paragraph: (4) Treatment of certain automatic gratuities (A) In general In the case of an individual engaged in an occupation in hospitality, food and beverage service, or cosmetology, the term qualified tips shall include automatic gratuities. (B) Automatic gratuity For purposes of this paragraph, the term automatic gratuity means, with respect to an individual, any amount which— (i) would be a qualified tip with respect to the individual but for paragraph (2)(A), and (ii) is a mandatory or suggested amount paid pursuant to a uniform policy of the employer, under which such entire amount is received by the individual or, under State or local law, is pooled and received only by employees of the employer under a tip-sharing arrangement.. (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2025.