Restaurant Service Charge Fairness Act

Section 45B(b) of the Internal Revenue Code of 1986 is amended—

(1) in paragraph (1)—

(A) by striking with respect to tips received by an employee and inserting

(A) with respect to either—

(A) tips received by an employee

(B) by redesignating subparagraphs (A) and (B) as clauses (i) and (ii),

(C) by striking the period at the end and inserting, or, and

(D) by adding at the end the following new subparagraph:

(B) service charges received by an employee during any month, to the extent that such service charges—

(i) are deemed to have been paid by the employer to the employee in the form of wages, and that such payment is only provided to non-management employees, and

(ii) exceed the amount by which the wages (excluding payments from service charges) paid by the employer to the employee during such month are less than the total amount which would be payable (with respect to such employment) at the minimum wage rate applicable to such individual under section 6(a)(1) of the Fair Labor Standards Act of 1938 (determined without regard to section 3(m) of such Act).

(2) in paragraph (2), by striking paragraph (1) and inserting paragraph (1)(A), and

(3) by adding at the end the following new paragraphs:

In applying paragraph (1), an employer may elect to claim a credit with respect to either tax paid with respect to tips described in subparagraph (A) of such paragraph or tax paid with respect to service charges described in subparagraph (B) of such paragraph, but not both.

In applying paragraph (1)(B), there shall be taken into account only so much of the service charges as does not exceed 25 percent of the gross receipts of the employer for the taxable year.

For purposes of this section, the term non-management employee means any employee who does not qualify for an exemption under section 13 of the Fair Labor Standards Act of 1938 (29 U.S.C. 213).

For purposes of this section, the term wages has the meaning given such term in section 3121(a).

(1) Section 3102(c) of such Code is amended—

(A) in the heading, by inserting or service charges after tips, and

(B) by striking tips each place it appears and inserting tips or service charges.

(2) Section 6053 of such Code is amended by striking tips each place it appears and inserting tips or service charges.

The amendment made by this section shall apply to taxes paid in taxable years beginning after December 31, 2024.