TIP Improvement Act of 2026

Paragraph (2)(A) of section 3(m) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)(2)(A)) is amended to read as follows:

(A) The wage required to be paid to a tipped employee shall be the wage set forth in section 6(a)(1). All tips received by such employee shall be retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.

Section 16 of the Fair Labor Standards Act of 1938 (29 U.S.C. 216) is amended—

(1) in subsection (b), by striking the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer and inserting the sum of all such tips unlawfully used or kept by the employer; and

(2) in subsection (c), by striking the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer and inserting the sum of all such tips unlawfully used or kept by the employer.

Section 224(b)(1) of the Internal Revenue Code of 1986 is amended by inserting (twice such amount in the case of a joint return) after $25,000.

Section 224(d)(2) of such Code is amended—

(1) in subparagraph (B), by striking and at the end,

(2) in subparagraph (C), by striking the period at the end and inserting a comma, and

(3) by inserting after subparagraph (C) the following new subparagraphs:

(D) such amount is paid by a person who does not bear a relationship to such individual described in section 267(b), and

(E) such individual does not have an ownership stake in the business which employs them in the job for which such individual is receiving a tip.

Section 224(e) of such Code is amended to read as follows:

No deduction shall be allowed under this section unless the individual includes such individual’s taxpayer identification number (in the case of a joint return, the taxpayer identification number of at least 1 spouse) on the return of tax for the taxable year.

Section 224(d) of such Code is amended by adding at the end the following new paragraph:

In the case of an individual engaged in an occupation in hospitality, food and beverage service, or cosmetology, the term qualified tips shall include an automatic gratuity.

For purposes of this paragraph, the term automatic gratuity means, with respect to an individual, any amount which—

(i) would be a qualified tip with respect to the individual but for paragraph (2)(A), and

(ii) is a mandatory or suggested amount paid pursuant to a uniform policy of the employer, under which such entire amount is received by the individual or, under State or local law, is pooled and received only by employees of the employer under a tip-sharing arrangement.

Section 224 of such Code is amended by striking subsection (h).

Section 224 of such Code is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f).

The amendments made by this section shall apply to taxable years beginning after December 31, 2025.