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.
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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.
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