[Congressional Record Volume 142, Number 90 (Tuesday, June 18, 1996)]
[Extensions of Remarks]
[Pages E1101-E1102]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          TIP TAX TRIBULATIONS

                                 ______


                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                         Tuesday, June 18, 1996

  Mr. CRANE. Mr. Speaker, today I introduce legislation to exclude tip 
income from the administrative and tax burdens of the Federal income 
tax. I have long objected to the taxation of tips and it was the recent 
tribulations of a constituent of mine which prompted me to once again 
introduce this legislation.
  Charlene Beyer from Round Lake Park, IL, recently sent to me copies 
of the forms and regulations covering the tax reporting requirements 
for tip income she receives as a restaurant employee. It is my 
understanding that hard working restaurant employees even take time out 
to attend classes to learn all the rules concerning tip reporting. 
While serving customers, they must keep track of their gratuities, then 
report them to the restaurant and the Internal Revenue Service [IRS]. 
The restaurant is also held liable for tip income of their employees. 
Of course, tip income is received by cab drivers, bartenders, and 
individuals of other professions. The IRS is given the difficult task 
of policing all these activities. The whole process creates a 
bureaucratic mess for both the taxpayer and the Government.

[[Page E1102]]

  I believe that tip income should not be treated on par with earned 
income for tax purposes. Gratuities are, by definition, discretionary 
in both amount and practice, irrespective of the service provided. In 
fact, tips are more gifts than income and current law allows an annual 
tax exemption from income of gifts up to $10,000 from an individual.
  I feel this bill will be especially relevant to the current debate 
over reforming the Internal Revenue Code. As one of the common goals of 
the numerous tax reform plans is simplification, the exclusion of tip 
income will go a long way toward simplifying the compliance of 
taxpayers with the law. The current process of taxing tip income 
provides an economic incentive for tip earners to evade taxes by 
underreporting income. Employers, too, are burdened with paying payroll 
taxes on both reported and unreported tip income. Although Congress 
provided a credit to employers for FICA taxes on tip income, a much 
more efficient solution, again, is to eliminate the tip tax altogether.
  I urge my colleagues to consider the merits of this bill and to lend 
their names as sponsors to it.

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