You may have heard about eliminating federal taxes on tips. Often earned by service workers, tips are generally reported as wages on an individual’s tax return.
Despite some speculating that a potential tax exemption could help low-income workers, others say it may lead to systemic abuse.
Either way, the so-called "One Big Beautiful Bill" (OBBB) that was recently signed into law approved no tax on tips. This makes tips under a certain threshold temporarily tax-deductible, although there are phase-out income limits for filers.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But even if your tips are tax-exempt at the federal level, how is your state weighing in on the tax on tips debate?
States can follow the federal “no taxes on tips” movement or decide to continue taxing tip income. They could also choose to instate wage caps on tips, which would mean that only a certain amount of tip income would be excluded from taxes (similar to how it will work federally).
Here are the states that are currently considering bills relating to no taxes on tips, and where those proposals are now.
Note: States with no income taxes were excluded from this list as they do not tax tips.
Tip tax law in Illinois
Illinois has a bill proposing no tax on tips. HB 1750, sponsored by Rep. Joe C. Sosnowski (R-Rockford), would not only:
- Exclude tips from wages, but also
- Exempt overtime from state income taxation.
The bill would also be “effective immediately” if signed into law.
Another Illinois bill seeks to end the state's tip credit — an amount paid by customers to subsidize employee pay. If the tip credit is eliminated, some speculate that independent and family-owned restaurants across the state would feel the strain from rising payroll costs.
Do you pay taxes on tips in Massachusetts?
Recently, there has been talk of a “no tax on tips” bill in Massachusetts. Proposed by Rep. Marc Lombardo (R-Middlesex), HB 3172 would make tipped wages, including tips from service industry workers, tax-exempt for state tax purposes.
Different types of workers could be impacted by this bill, including:
- Bartenders
- Restaurant workers
- Nail and hair stylists
The no tax on tips proposal in Massachusetts was introduced in February and is currently in the Joint Revenue Committee for review.
New Jersey no tax on tips
New Jersey service workers would pay no tax on tips if S-3741 is signed into law. Proposed by Sen. Vince Polistina (R-Egg Harbor Township), the bill would:
- Remove tips from the list of taxable income on New Jersey’s gross income tax.
- Begin on or after January 1 next following the date of enactment.
The minimum wage in New Jersey is $15.49 for most employees. However, that number can include tips and base pay, so if an employee earns higher tips, the base pay may be lowered to meet the minimum wage rate. S-3741 could help higher-tip-earning employees potentially make up for lower base pay.
Are tips taxable in New York?
New York is also considering a no tax on tip income proposal, SB 587. Introduced by Senate Republicans, the bill would eliminate state income taxes on cash tips.
Notably, no tax on tips in New York could provide tax relief in a state that is one of the most expensive to live in and has some of the highest sales taxes across all U.S. states. Currently, the proposal is pending a review by the Senate Investigations and Government Operations Committee.
Does North Carolina tax tips?
North Carolina has a bill that includes more than no taxes on tips. Republican-led HB 11 would provide:
- An exemption of state income taxes on tips.
- No tax on overtime pay.
- An exemption on the first $2,500 in bonuses from state income taxes.
Bonus pay might include hourly and salaried workers. The bill has been passed to the state’s House Finance Committee for review.
Oregon ending tax on tips?
Sen. Dick Anderson (R-Lincoln City) has submitted a plan for a “No Tax on Tips” bill in Oregon. The bill would provide tax relief for service industry workers, including waitstaff, bartenders, and other tipped employees, by exempting tips from the Beaver State’s income tax.
Tips are currently taxed as ordinary income, which for Oregon taxpayers is between 4.75% and 9.9%, depending on an individual’s income bracket. If no tax on tips is formally proposed and signed into law, that would mean taxpayers could save at least $4.75 per $100 in tip income.
Is there tax on tips in Pennsylvania?
Pennsylvania lawmakers are seeking to exempt tipped pay from state taxes and no tax on overtime, in two separate bills:
- HB 1514, a House Republican bill, would allow for a tax credit to offset taxes collected on tips.
- HB 1586, also Republican-led, would provide a tax credit for state taxes on overtime pay.
Currently, both bills are in the House Finance Committee for consideration. If signed into law, either bill would be effective after December 31, 2025.
State tax on tips
More states may weigh in on the “no tax on tips” debate. State legislatures will continue to meet throughout 2025 and into 2026, and tip income could be on the slate of bills proposed. Stay tuned.
Read More
-
The Stoic Retirement: Ancient Wisdom for Today's RealityA "Stoic retirement" doesn't mean depriving yourself. It's a character-based approach to life and aging that can bring calm and clarity.
-
My Teen Crashed His Car and Now Our Insurance Has Tripled. What Now?Dealing with the costly aftermath of a teen car accident is stressful. Here are your options for navigating it.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
IRS Says You Made a Tax Return Mistake? A New Law Could Help You Fight BackTax Law Updated taxpayer protections change what the IRS must explain on error notices and how long you have to respond.
-
Tax Refund Alert: House GOP Predicts 'Average' $1,000 Payouts in 2026Tax Refunds Here's how the IRS tax refund outlook for 2026 is changing and what steps you can take now to prepare.
-
Is a New $25,000 Health Care Tax Deduction Coming in 2026?Tax Policy A proposal from GOP Sen. Josh Hawley adds to the chatter about health care affordability.
-
Are You Middle-Class? Here's the Most Tax-Friendly State for Your FamilyTax Tips We found the state with no income tax, low property tax bills and exemptions on groceries and medicine.
-
Costco Sues Over Trump Tariffs: What Could That Mean for Prices in 2026?Tariffs The retailer is making headlines not just for its famous hot dog and gold bars but for suing the Trump administration over tariffs.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
