TIPS Act

The Tipped Income Protection and Support Act, or TIPS Act, proposes significant changes to how tipped employees are compensated and taxed. It amends the Fair Labor Standards Act of 1938 to eliminate the separate sub-minimum wage for tipped employees , mandating that employers pay them the full federal minimum wage. This change ensures that all tips received by an employee are retained by them, though it still permits the pooling of tips among customarily tipped staff. Additionally, the bill introduces a new federal income tax deduction for "qualified tips" under the Internal Revenue Code. This deduction is available for reported cash tips received from unrelated parties in traditionally tipped occupations, such as hospitality and food service. However, it is subject to an adjusted gross income limitation of $112,500 , meaning higher earners would not qualify. The deduction is designed to be accessible to non-itemizers and is exempt from certain other itemized deduction limitations, with the Treasury Secretary directed to update withholding procedures accordingly, effective for taxable years beginning after December 31, 2025.