HR 3664 IHCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to provide that tips shall not be subject to income or employment taxes.CommentsClose CommentsPermalink

September 25, 2007

Mr. PAUL introduced the following bill; which was referred to the Committee on Ways and MeansCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to provide that tips shall not be subject to income or employment taxes.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink

SECTION 1. SHORT TITLE.

(a) Short Title- This Act may be cited as the `Tax Free Tips Act of 2007'.CommentsClose CommentsPermalink





(b) Amendment of 1986 Code- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of , a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.CommentsClose CommentsPermalink

SEC. 2. TIPS NOT SUBJECT TO INCOME OR EMPLOYMENT TAXES.

(a) In General- Section 102 (relating to gifts and inheritances) is amended by adding at the end the following new subsection:CommentsClose CommentsPermalink





`(d) Tips- For purposes of subsection (a), tips shall be treated as property transferred by gift.'.CommentsClose CommentsPermalink





(b) Exclusion From Social Security Taxes-CommentsClose CommentsPermalink





(1) SOCIAL SECURITY TAXES-CommentsClose CommentsPermalink





(A) Paragraph (12) of section 3121(a) is amended to read as follows:CommentsClose CommentsPermalink





`(12) tips;'.CommentsClose CommentsPermalink





(B) Section 3121 is amended by striking subsection (q) (relating to tips included for both employee and employer taxes).CommentsClose CommentsPermalink





(C) Subsection (a) of section 3102 is amended by striking `; and an employer who is furnished by an employee a written statement of tips (received in a calendar month) pursuant to section 6053(a) to which paragraph (12)(B) of section 3121(a) is applicable may deduct an amount equivalent to such tax with respect to such tips from any wages of the employee (exclusive of tips) under his control, even though at the time such statement is furnished the total amount of the tips included in statements furnished to the employer as having been received by the employee in such calendar month in the course of his employment by such employer is less than $20'.CommentsClose CommentsPermalink





(D) Section 3102 is amended by striking subsection (c) (relating to special rule for tips).CommentsClose CommentsPermalink





(E) Subsection (a) of section 3202 is amended by striking the second sentence.CommentsClose CommentsPermalink





(2) TIER 1 RAILROAD RETIREMENT-CommentsClose CommentsPermalink





(A) Section 3202 is amended by striking subsection (c).CommentsClose CommentsPermalink





(B) Paragraph (3) of section 3231(e) is amended to read as follows:CommentsClose CommentsPermalink





`(3) Solely for purposes of the taxes imposed by section 3201 and other provisions of this chapter insofar as they relate to such taxes, the term `compensation' shall not include tips.'.CommentsClose CommentsPermalink





(C) Section 3231 is amended by striking subsection (h).CommentsClose CommentsPermalink





(c) Exclusion From Unemployment Compensation Taxes- Subsection (s) of section 3306 is amended to read as follows:CommentsClose CommentsPermalink





`(s) Tips Not Treated as Wages- For purposes of this chapter, the term `wages' shall not include tips.'.CommentsClose CommentsPermalink





(d) Exclusion From Wage Withholding-CommentsClose CommentsPermalink





(1) Paragraph (16) of section 3401(a) is amended to read as follows:CommentsClose CommentsPermalink





`(16) tips;'.CommentsClose CommentsPermalink





(2) Section 3401 is amended by striking subsection (f).CommentsClose CommentsPermalink





(3) Section 3402 is amended by striking subsection (k).CommentsClose CommentsPermalink





(e) Tips Defined- Subsection (a) of section 7701 (relating to definitions) is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





`(50) TIPS- The term `tips' includes any gratuity provided to a salaried employee by a customer or client of the employer's business.'.CommentsClose CommentsPermalink





(f) Conforming Amendments-CommentsClose CommentsPermalink





(1) Clause (i) of section 32(c)(2)(A) (defining earned income) is amended by striking `tips,'.CommentsClose CommentsPermalink





(2)(A) Section 45B (relating to credit for portion of employer social security taxes paid with respect to employee cash tips) is hereby repealed.CommentsClose CommentsPermalink





(B) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 45B.CommentsClose CommentsPermalink





(C) Subsection (b) of section 38 is amended by striking paragraph (11) and by redesignating the succeeding paragraphs accordingly.CommentsClose CommentsPermalink





(D) Subsection (c) of section 196 is amended by striking paragraph (8) and by redesignating the succeeding paragraphs accordingly.CommentsClose CommentsPermalink





(E) Subsection (m) of section 6501 is amended by striking `45B,'.CommentsClose CommentsPermalink





(3) Section 220(b)(4)(A) is amended by striking `tips,'.CommentsClose CommentsPermalink





(4) Section 451 is amended by striking subsection (c).CommentsClose CommentsPermalink





(5) Section 6001 is amended by striking the last sentence.CommentsClose CommentsPermalink





(6) Section 6041 is amended by striking subsection (e).CommentsClose CommentsPermalink





(7) Subsection (c) of section 6041A is amended by striking `, 6052, or 6053' and inserting `or 6052'.CommentsClose CommentsPermalink





(8) Subsection (a) of section 6051 is amended by striking `In the case of tips received by an employee in the course of his employment, the amounts required to be shown by paragraphs (3) and (5) shall include only such tips as are included in statements furnished to the employer pursuant to section 6053(a).'.CommentsClose CommentsPermalink





(9) Section 6053 (relating to tip reporting) is hereby repealed.CommentsClose CommentsPermalink





(10) The table of sections for subpart C of part III of subchapter A of chapter 61 is amended by striking the item relating to section 6053.CommentsClose CommentsPermalink





(11) Section 6652 is amended by striking subsection (b) (relating to failure to report tips).CommentsClose CommentsPermalink





(12) Section 6674 (relating to fraudulent statement or failure to furnish statement to employee) is amended by striking `or 6053(b)' each place it appears.CommentsClose CommentsPermalink





(13) Subparagraph (B) of section 6724(d)(1) is amended by striking clause (xv) and redesignating the succeeding clauses accordingly.CommentsClose CommentsPermalink





(14) Paragraph (2) of section 6724(d) is amended by striking subparagraph (V) and redesignating the succeeding subparagraphs accordingly.CommentsClose CommentsPermalink





(g) Effective Date- The amendments made by this section shall apply to tips received in calendar months beginning after the date of the enactment of this Act.CommentsClose CommentsPermalink