The Tip Tax Termination Act would create a temporary federal income tax exclusion for tipped workers. It adds a new provision (Section 139J) to the Internal Revenue Code that allows up to $20,000 of “eligible tips” to be excluded from gross income in a given tax year. Eligible tips are those received by workers in occupations that generally rely on tips, such as cosmetology, hospitality, and food service. The exclusion is available for five years, applying to tips received after December 31, 2024, and ending after December 31, 2029. The bill would require withholding tables to reflect this exclusion. It also generally prevents the excluded tip amount from being used to claim other deductions or credits, with the notable exception that it would be taken into account for the Child Tax Credit and Earned Income Credit. The text does not modify FICA taxes; it only affects federal income tax withholding and computation.
Key Points
- 1Creates a new Sec. 139J to exclude up to $20,000 of eligible tips from gross income each taxable year for tipped workers (cosmetology, hospitality, food service, and similar roles).
- 2The exclusion is temporary: applicable to tips received after 12/31/2024 and terminating after 12/31/2029 (five-year window).
- 3The excluded amount generally cannot be used to claim other deductions or credits, with exceptions for the Child Tax Credit (CTC) and Earned Income Credit (EITC).
- 4Employers/ Treasury impact: requires the Secretary of the Treasury to modify income tax withholding tables and procedures to reflect the exclusion; includes a clerical amendment to add Sec. 139J to the Code.
- 5Effective administration: the changes apply to amounts received after 12/31/2024, and the law would lapse for tips received after 12/31/2029.