TIP Improvement Act of 2026

Key Points

• This bill would stop employers from paying tipped workers a lower base wage. Right now, many servers and bartenders are paid a 'tipped minimum wage' that is much lower than the standard rate. This change would require businesses to pay the full federal minimum wage before any tips are added.
• The plan makes a tax deduction for tips permanent and doubles the amount for married couples. Under this rule, married couples who both work for tips could deduct up to $50,000 of that income from their taxes. This is designed to help service workers keep more of the money they earn from customers.
• The bill includes 'automatic gratuities' in the tax-free category for people working in restaurants, hotels, and hair salons. This means the mandatory service charges often added to large group bills would be treated the same as regular tips for tax purposes, providing more consistent take-home pay.
• To prevent people from abusing the system, the bill adds strict anti-fraud rules. Workers cannot claim these tax breaks on tips given by family members, and business owners cannot claim tips if they have an ownership stake in the company where they work. All workers must also provide a valid tax ID number to get the deduction.