HR6295-119

What This Bill Does

The Working for Tips Tax Relief Act creates a new Internal Revenue Code section allowing individuals to deduct qualified reported cash tips included on employer, platform, payment-settlement, or wage statements, or reported on Form 4137. The deduction is capped at $35,000 per year, phases down by $50 for each $500 of modified AGI between $50,000 and $75,000 for single filers and $100,000 and $150,000 for joint filers, and disappears above those limits. It applies to taxable years after December 31, 2025, and expires for the taxable year beginning December 31, 2028. Qualified tips must be voluntary, non-negotiated, customer-determined cash or charged tips in occupations that customarily and regularly received tips before December 31, 2024, excluding specified service trades or businesses. Taxpayers must provide Social Security numbers, married taxpayers must file jointly, Treasury may adjust thresholds based on living wage estimates, and Treasury must report biennially to Congress on utilization, workforce participation, wage equity, and recommendations.

Who Benefits and How

Tip-earning workers in qualifying occupations benefit from a deduction that can exclude up to $35,000 of reported tips from taxable income. Lower- and moderate-income tipped workers benefit most because the deduction phases out above $50,000 single or $100,000 joint modified AGI. Restaurants, hospitality, and other tipped-service employers may benefit if the deduction improves recruitment or retention.

Who Bears the Burden and How

The IRS and Treasury must write guidance, administer phaseouts, enforce definitions of qualified tips and excluded service businesses, review living wage estimates, and submit biennial reports. Federal tax revenue decreases for eligible deductions. Taxpayers, employers, platforms, and payment processors must report tips accurately and supply Social Security numbers or statements needed for the deduction.

Key Provisions

• Creates a deduction for qualified reported cash tips in occupations that customarily received tips before December 31, 2024.
• Caps the deduction at $35,000 per year and phases it out between $50,000 and $75,000 of modified AGI, or $100,000 and $150,000 for joint returns.
• Requires qualified tips to be voluntary, non-negotiated, customer-determined, and outside specified service trades or businesses.
• Requires Social Security number reporting and joint filing for married taxpayers.
• Authorizes Treasury to adjust thresholds based on living wage estimates and requires biennial reports to Congress.