This part lets a worker deduct tips from taxable income. The deduction is capped at $25,000 a year. It shrinks for people earning over $150,000. It ends after tax year 2028. A tip credit is also opened to hair and nail salons.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“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”
The section adds a new section 224 to part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986, redesignating the old section 224 as section 225. It allows a deduction equal to the qualified tips received in the taxable year that appear on statements furnished under section 6041(d)(3), 6041A(e)(3), 6050W(f)(2) or 6051(a)(18), or that the taxpayer reports on Form 4137 or a successor.
What the document actually says
“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”
That sentence, in plain words
A worker may deduct the tips taken in that year. The tips must appear on a statement given to the worker.
What this is about
Tips the worker reports on a set form also count. A deduction lowers the income that is taxed. Four kinds of statement are named.
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The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“The amount allowed as a deduction under this section for any taxable year shall not exceed $25,000.”
The section caps the deduction at $25,000 for a taxable year.
What the document actually says
“The amount allowed as a deduction under this section for any taxable year shall not exceed $25,000.”
That sentence, in plain words
The deduction may not top $25,000. That is the cap for one tax year.
What this is about
Tips above that get no break. The cap does not grow with prices. It is fixed in the law.
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The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).”
The section reduces the deduction, after the cap, but not below zero, by $100 for each $1,000 of modified adjusted gross income above $150,000, or $300,000 on a joint return. Modified adjusted gross income means adjusted gross income increased by any amount excluded under section 911, 931 or 933.
What the document actually says
“shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).”
That sentence, in plain words
The deduction shrinks as income rises. It drops by $100 for each $1,000 over $150,000. On a joint return the line is $300,000. It never drops below zero.
What this is about
Income here counts some money earned abroad. The cut comes after the cap is applied. A high enough income wipes the break out.
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The document says “means”Who acts: Congress, Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“The term `qualified tips' means cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary.”
The section defines qualified tips as cash tips received in an occupation that customarily and regularly got tips on or before December 31, 2024, as the Secretary provides. An amount is excluded unless it is paid voluntarily with no consequence for nonpayment, is not negotiated and is set by the payor; the trade or business is not a specified service trade or business as defined in section 199A(d)(2); and any other requirement the Secretary sets is met. An employee is treated as working in a specified service trade or business if the employer's business is one. Cash tips include tips paid in cash or charged and, for an employee, tips received under a tip-sharing arrangement.
What the document actually says
“The term `qualified tips' means cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary.”
That sentence, in plain words
The term covers cash tips. The job must be one that got tips before the end of 2024. The Secretary decides which jobs those are.
What this is about
The tip must be given freely, with no penalty for not paying. It must not be haggled over. Charged tips and shared tips count as cash tips.
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The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“such qualified tips shall be taken into account under subsection (a) only to the extent that the gross income for the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of the deductions”
The section provides that where qualified tips are received in the course of a trade or business other than performing services as an employee, they count toward the deduction only so far as the gross income from that business for the year, including the tips, exceeds the deductions allocable to that business other than the tip deduction itself.
What the document actually says
“such qualified tips shall be taken into account under subsection (a) only to the extent that the gross income for the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of the deductions”
That sentence, in plain words
Tips earned in a business count only up to a point. The business income must first clear its other costs.
What this is about
This applies to people who are not employees. A business running at a loss gets no break. Only the part above costs counts.
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The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year such individual's social security number.”
The section denies the deduction unless the taxpayer puts the individual's social security number on the return, with social security number taking the meaning given in section 24(h)(7). A married individual within the meaning of section 7703 may use the section only if the couple files a joint return for the year.
What the document actually says
“No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year such individual's social security number.”
That sentence, in plain words
No break is given unless a number is on the return. That is the worker's own social security number. It must be there each year.
What this is about
A married worker must file with a spouse. Filing alone means no break. Both rules must be met.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.”
The section ends the deduction for any taxable year beginning after December 31, 2028. It also requires the Secretary to write regulations or other guidance to stop income being reclassified as qualified tips and to prevent abuse of the deduction.
What the document actually says
“No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.”
That sentence, in plain words
No break is given for a tax year that begins after December 31, 2028.
What this is about
So the deduction runs for four tax years. Congress must act again to keep it. The Secretary must also write rules against abuse.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“any amount with respect to which a deduction is allowable to the taxpayer under section 224(a) for the taxable year.”
The section adds the new deduction to the list in section 63(b) of the Internal Revenue Code of 1986 so that a taxpayer who does not itemize may claim it, adds a new subparagraph (D) to section 199A(c)(4) taking amounts deductible under the new section out of qualified business income, and adds a new subparagraph (Y) to section 6213(g)(2) treating the omission of a correct social security number as a mathematical or clerical error.
What the document actually says
“any amount with respect to which a deduction is allowable to the taxpayer under section 224(a) for the taxable year.”
That sentence, in plain words
Amounts that get the tip break are named. They are taken out of one business income sum.
What this is about
The break is open to people who do not itemize. Leaving out the social security number counts as a math error. Those changes sit in other parts of the tax code.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“The providing of any of the following services to a customer or client if the tipping of employees providing such services is customary:”
The section rewrites section 45B(b)(2) of the Internal Revenue Code of 1986 so that the credit takes account of tips from customers for providing, delivering or serving food or beverages where tipping is customary, and for barbering and hair care, nail care, esthetics, and body and spa treatments where tipping is customary. It also amends section 45B(b)(1)(B) so that the January 1, 2007 minimum wage figure applies only to food or beverage establishments.
What the document actually says
“The providing of any of the following services to a customer or client if the tipping of employees providing such services is customary:”
That sentence, in plain words
Tips for the services listed below now count. They count only where tipping is the custom.
What this is about
Four kinds of service are added. They are hair care, nail care, esthetics, and body and spa work. Food and drink service still counts too.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“in the case of compensation to non-employees, the portion of payments that have been reasonably designated as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips.”
The section amends sections 6041, 6041A, 6050W and 6051 of the Internal Revenue Code of 1986 so that returns and statements to the Secretary and to the payee separately account for amounts reasonably designated as cash tips and name the occupation described in section 224(d)(1) of the person receiving them. For cash tips reportable for periods before January 1, 2026, filers may approximate that separate accounting by any reasonable method the Secretary specifies.
What the document actually says
“in the case of compensation to non-employees, the portion of payments that have been reasonably designated as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips.”
That sentence, in plain words
A payer must report the part of a payment that is a cash tip. It must also name the job of the person paid. This covers people who are not employees.
What this is about
The same duty is added in four places. It reaches employers and payment firms. For periods before 2026 an estimate may be used.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“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 customarily and regularly received tips on or before December 31, 2024”
The section requires the Secretary of the Treasury or a delegate to publish, within 90 days of enactment, a list of occupations that customarily and regularly received tips on or before December 31, 2024, for the purposes of the new definition, and to change the withholding procedures under section 3402(a) of the Internal Revenue Code of 1986 for taxable years beginning after December 31, 2025 to take the new deduction into account.
What the document actually says
“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 customarily and regularly received tips on or before December 31, 2024”
That sentence, in plain words
The Treasury must publish a list of jobs within 90 days. The list names jobs that got tips before the end of 2024.
What this is about
That list decides who can claim the break. The Treasury must also change how tax is held back from pay. That change starts with tax years after 2025.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall apply”Who acts: Secretary of the TreasuryHow: statuteSec. 70201 in the PDF
What the document says
“The amendments made by this section shall apply to taxable years beginning after December 31, 2024.”
The section applies its amendments to taxable years beginning after December 31, 2024.
What the document actually says
“The amendments made by this section shall apply to taxable years beginning after December 31, 2024.”
That sentence, in plain words
The changes start with tax years that begin after December 31, 2024.
What this is about
Earlier tax years are not touched. The old rules still hold for them. The date is fixed in the law.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
Each distinct thing the section does: the new deduction for qualified tips, the dollar cap, the income phasedown, the definition of qualified tips and its exclusions, the limit for tips received in a trade or business, the social security number and joint return conditions, the anti-abuse regulations, the end date, the treatment of the deduction for non-itemizers and for qualified business income, the extension of the tip credit to beauty services, the new reporting duties, the list of tipped occupations, the change to withholding, and the effective date.
The clerical amendment redesignating a table of sections item, and the mechanical edits that strike an and or replace a period so a new paragraph could be added.
The section adds a section to the Internal Revenue Code of 1986 and amends many others, none of which is indexed here, so how the surrounding rules work cannot be checked against anything on this site.
