By Greg Penglis, and Grok AI, Sept. 14, 2025
INTRODUCTION:
I, like millions of other patriotic Americans who believe in limited government, and the limited taxation that goes with it, thought that the “no tax on tips” idea President Trump got from a server in a restaurant was going to be a great thing for folks dependent on tips, Tipped folks like the idea of controlling their income by working harder and being worthy of higher tips. The problem is that tips are necessary in many jobs because their employers refuse to pay full wages, and love the labor cost subsidy that tips represent.
All was well until I heard a news report that said people have to report all their tips to claim a “refund!” That to me was an absurdity. Why if there is no tax on tips would you have to report anything? Under a normal, logical system, you wouldn’t. But this is Congress, not logic, and Congress is dependent on tax dollars. So here’s how this is going to go. They are going to get millions of working folks who never reported their tips before, to report them now, in order to get the refund.
Well how is it going to look when millions of people suddenly report a whole bunch more income? It’s going to look like they didn’t report their income when tips were taxed. So this is a trap, and a whole lot of people are going to get audited, fined, and maybe imprisoned, all for complying with a law they thought was in their interest. And here’s the catch. When the Democrats steal back Congress again, they are going to revoke the refund, but keep all the reporting requirements, and tips will be taxed like never before.
There is an understanding over tips between the IRS and the average working person with tips. They know that millions of tipped workers receive cash tips. They know that almost no one who receives cash tips reports them because the cash is untraceable over that many people, and all the tipped employees know that all the other tipped employees aren’t reporting cash tips either. So the reporting of cash tips has never been a priority. Besides, they get a percentage of a server’s gross sales directly from the restaurant, withheld from the pay of the tipped worker, whether or not the server actually earned that much in tips. And also in this understanding, are millions of people who only tip in cash as a further benefit to the tipped worker. So why mess with this system? It is my belief that cash tips will continue to not be reported, because people don’t want their cash tips taxed, and the IRS will continue to ignore the non-reporting of cash tips, and customers will continue to tip in cash to help their tipped service person.
One problem of this is that the only tips being reported are those being taken now by previous laws requiring the withholding of a percent of growth sales, since those things are being reported anyway, so why not report the withholding and get the refund. However, because so little will change because cash tips will not be reported, because people aren’t stupid, this new law will effectively change nothing, and the Democrats will call for “change” because it isn’t working, and that’s when the refund portion will be dropped, and the reporting provision will be kept.
Another problem with the current system is that restaurants and other businesses lobbied for a lower “tipped” wage, below the minimum wage, because they were saying those employees were making tips to supplement their wages. Where this argument fails is because the employers weren’t paying the difference between the lower tipped wage, and the minimum wage, the customers were, so the employers have no legal or other legitimate claim to a lower tipped wage below the minimum wage. The tipped wage is actually a corporate welfare subsidy of a lower than legal wage, while using an outside the company revenue source as justification. So our bill gets rid of all lower than minimum wage, tipped wages.
Lastly and really important is to change how tips are categorized in law. Currently they are simply income. But that isn’t quite true. Tips are dependent on people willing to pay them. Many people are philosophically opposed to tips, and won’t pay them, yet the restaurant deducts a percent of gross sales as if they did. So in this bill we change tips into a non-taxable, excluded, fringe benefit. We change tips so that they are classified in law exactly as other exempt from taxation benefits, like corporate per diems, expense accounts, travel accounts, personal parking places, complementary electric chargers, health plans, other benefit plans, stock options, in fact any extra benefit or compensation exempt from being classified as income, we have done the same for tips.
So what we have here is the real, “No Tax on Tips” bill. Please get this to President Trump, Congress, all media and all social media, so we can replace the current “More Tax on Tips” law.
A BILL:
To amend Title 26 and Title 29 of the United States Code to eliminate tip reporting and withholding requirements, to exclude tips from gross income as nontaxable benefits, to eliminate the differential tipped wage, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. This Act may be cited as the “Tip Tax Freedom Act of 2025”.
SECTION 2. CONGRESSIONAL FINDINGS ON TIP INCOME AND WAGES.
Congress finds the following:
Tips are voluntary payments made by customers to employees in recognition of services, similar to nontaxable benefits such as employer-provided health benefits, company vehicles, per diems, and electric vehicle charging facilities.
Tips are inconsistent and dependent on customer behavior, with many customers choosing not to tip, yet employers in tipped industries rely on tips to meet wage obligations, treating employees as if tips are guaranteed income.
Current requirements for reporting and withholding taxes on tips impose administrative burdens on employees and employers in tipped industries.
The differential tipped wage, which allows employers to pay less than the standard minimum wage to tipped employees, shifts the responsibility for employee compensation from employers to customers, creating inequities and income instability for workers.
Excluding tips from taxable income, eliminating reporting and withholding requirements, and ensuring all employees receive the full minimum wage will simplify tax compliance, promote wage fairness, and provide equitable tax treatment for tipped workers.
SECTION 3. EXCLUSION OF TIPS FROM GROSS INCOME – AMENDMENTS TO 26 U.S.C. § 61 AND § 132.
(a) In General – Amendment to 26 U.S.C. § 61 – Gross income defined, (a) – General definition.—Section 61(a) of Title 26 of the United States Code – (located in Subtitle A, Chapter 1, Subchapter B, Part I) is amended by adding at the end the following new paragraph:
“(15) tips, gratuities, or other voluntary payments received by an individual in the course of their employment are not treated as gross income under this title.”
(b) Conforming Amendment – Amendment to 26 U.S.C. § 132 – Certain fringe benefits.—Section 132 of Title 26 of the United States Code (located in Subtitle A, Chapter 1, Subchapter B, Part III) is amended by adding at the end the following new subsection:
“(p) Tips as Nontaxable Benefits.—For purposes of this section, tips, gratuities, or other voluntary payments received by an individual in the course of their employment shall be treated as excludable fringe benefits, similar to employer-provided health benefits, company vehicles, per diems, electric vehicle charging facilities, and other benefits excluded from gross income under this section.”
SECTION 4. REPEAL OF TIP REPORTING AND WITHHOLDING REQUIREMENTS – AMENDMENTS TO 26 U.S.C. §§ 3121, 6053, 6001, 6011, 6051, 45B, 3401, 3102.
(a) Repeal of Tip Allocation Rules – Amendment to 26 U.S.C. § 3121 – Definitions, Section 3121(q) – Tips included for both employee and employer taxes – of Title 26 of the United States Code (located in Subtitle C, Chapter 21, Subchapter C) is amended—
(1) by striking
“tips received by an employee in the course of his employment shall be considered remuneration for such employment (and deemed to have been paid by the employer for purposes of subsections (a) and (b) of section 3111),” and inserting:
“tips, gratuities, or other voluntary payments received by an individual in the course of their employment shall not be treated as wages for purposes of this chapter”; and
(2) by striking “Such remuneration shall be deemed to be paid” and all that follows through “by the Secretary.”.
(b) Repeal of Tip Reporting Requirements.—
(1) Repeal of 26 U.S.C. § 6053 – Reporting of tips.—Section 6053 of Title 26 of the United States Code (located in Subtitle F, Chapter 61, Subchapter A, Part III, Subpart C) is repealed.(2) Conforming Amendments to Other Reporting Provisions.—
(A) Section 6001 – Notice or regulations requiring records, statements, and special returns – of Title 26 of the United States Code (located in Subtitle F, Chapter 61, Subchapter A, Part I) is amended by adding at the end the following:
“No records, statements, or returns required under this section shall include information regarding tips, gratuities, or other voluntary payments received by an individual in the course of their employment.”
(B) Section 6011 – General requirement of return, statement, or list, (a) – General rule, of Title 26 of the United States Code (located in Subtitle F, Chapter 61, Subchapter A, Part II) is amended by adding at the end the following:
“No return or statement required under this subsection shall include information regarding tips, gratuities, or other voluntary payments received by an individual in the course of their employment.”
(C) Section 6051 – Receipts for employees, (a) – Requirement, (3) of Title 26 of the United States Code (located in Subtitle F, Chapter 61, Subchapter A, Part III, Subpart B) is amended by striking “the total amount of wages as defined in section 3401(a),” and inserting
“the total amount of wages as defined in section 3401(a), excluding tips, gratuities, or other voluntary payments received by an individual in the course of their employment,”.
(c) Repeal of FICA Tip Credit – Repeal of 26 U.S.C. § 45B – Credit for portion of employer social security taxes paid with respect to employee cash tips.—Section 45B of Title 26 of the United States Code (located in Subtitle A, Chapter 1, Subchapter A, Part IV, Subpart D) is repealed.
(d) Conforming Amendments to Withholding Provisions.—(1) Section 3401 – Definitions, (a) – Wages, of Title 26 of the United States Code (located in Subtitle C, Chapter 24) is amended by striking
“, including the amount of tips reported to the employer under section 6053(a)” in the first sentence.(2) Section 3102 – Deduction of tax from wages, (c) – Special rule for tips, of Title 26 of the United States Code (located in Subtitle C, Chapter 21, Subchapter A) is amended by striking subsection (c) in its entirety.”
(e) Conforming Amendment to Regulations and Forms.—Any regulations, forms, or guidance issued under Title 26 of the United States Code, including but not limited to Form 4137 (Social Security and Medicare Tax on Unreported Tip Income) and Form 8027 (Employer’s Annual Information Return of Tip Income and Allocated Tips), shall be modified to eliminate all requirements for reporting or withholding taxes on tips, consistent with the amendments made by this section.
SECTION 5. EXCLUSION OF TIPS FROM EMPLOYMENT TAXES – AMENDMENTS TO 26 U.S.C. §§ 3121, 3111, 3306.(a) Exclusion from Wages for FICA Purposes – Amendment to 26 U.S.C. § 3121 – Definitions,
(a) – Wages.—Section 3121(a) of Title 26 of the United States Code (located in Subtitle C, Chapter 21, Subchapter C) is amended—
(1) by striking paragraph (12)(B) in its entirety, which reads: “tips received by an employee in the course of his employment, but only in an amount equal to $20 or more in a calendar month of such employment”; and
(2) by adding at the end the following new paragraph: “(24) any tips, gratuities, or other voluntary payments received by an individual in the course of their employment, to the extent such amounts are excluded from gross income under section 61(a)(15) of this title.”
(b) Conforming Amendments.—(1) Section 3111 – Rate of tax – of Title 26 of the United States Code (located in Subtitle C, Chapter 21, Subchapter B) is amended by adding at the end the following new subsection:
“(f) Exclusion of Tips.—No tax shall be imposed under this section on tips, gratuities, or other voluntary payments excluded from wages under section 3121(a)(24).”
(2) Section 3306 – Definitions – of Title 26 of the United States Code (located in Subtitle C, Chapter 23, Subchapter C) is amended by adding at the end the following new subsection:
“(u) Exclusion of Tips.—The term ‘wages’ does not include tips, gratuities, or other voluntary payments excluded from wages under section 3121(a)(24) of this title.”
SECTION 6. ELIMINATION OF TIPPED WAGE DIFFERENTIAL – AMENDMENTS TO DEFINITIONS AND MINIMUM WAGE IN 29 U.S.C. §§ 203, 206.(a) Repeal of Tip Credit – Amendment to 29 U.S.C. § 203 – Definitions.—
Section 203(m) of Title 29 of the United States Code (located in Chapter 8) is amended—
(1) by striking paragraph (2)(A); and(2)(B); and the main text of paragraph (2) in their entirety and inserting the following:
“(B) An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit, nor to allow tips to be pooled or grouped in any way as tips are individual compensation.”
(b) Application of Minimum Wage to Tipped Employees – Amendment to 29 U.S.C. § 206 – Employees engaged in commerce; home workers in Puerto Rico and Virgin Islands; employees in American Samoa; seamen on American vessels; agricultural employees.—Section 206(a) of Title 29 of the United States Code (located in Chapter 8) is amended by adding at the end the following new paragraph:
“(5) Application to Tipped Employees.—The minimum wage required under paragraph (1)(D) shall apply to all employees, including those in occupations where tips, gratuities, or other voluntary payments are customarily received, without exception or reduction on account of such tips.”
(c) Employer Obligation.—For purposes of compliance with section 206(a) of Title 29 of the United States Code, employers shall pay all employees, including those in tipped occupations, at least the minimum wage specified in section 206(a)(1)(D), without regard to tips, gratuities, or other voluntary payments received from customers.
SECTION 7. EFFECTIVE DATE OF AMENDMENTS.
The amendments made by this Act shall apply to wages paid and tips received in taxable years beginning after December 31, 2025.
SECTION 8. REGULATORY IMPLEMENTATION.
Not later than 180 days after the date of enactment of this Act, the Secretary of the Treasury and the Secretary of Labor shall issue guidance to implement the amendments made by this Act, including updates to forms, publications, and procedures to reflect the exclusion of tips from gross income, the elimination of tip reporting and withholding requirements, and the application of the minimum wage to all employees regardless of tips received.
ENDORSEMENTS:
BILL STATUS:
COMMENTS: