TIP Improvement Act of 2026

The bill amends the Fair Labor Standards Act to require that tipped employees be paid the standard federal minimum wage under section 6(a)(1), rather than a reduced tipped minimum, and clarifies that tips must be retained by employees (tip pooling among regular tip recipients remains allowed). It increases FLSA penalties for employers who unlawfully use or keep tips, measured by the full amount of such tips rather than the tip credit. It also amends the Internal Revenue Code to double the qualified tip deduction limit on joint returns, add anti-abuse conditions (payer not related under section 267(b), and the worker has no ownership stake in the employing business), require a taxpayer identification number, extend the deduction to automatic gratuities in hospitality, food and beverage, and cosmetology, and make the deduction permanent, effective for taxable years beginning after December 31, 2025.