Lawmakers Debate ‘No Tax on Tips’ After Cutting It from Evers’ Budget
The policy echoes a provision in President Donald Trump's signature tax and immigration law
Cash. (CC0) https://creativecommons.org/public-domain/cc0/
Wisconsin state lawmakers are debating a proposal to eliminate taxes on income earned through tips, a policy Gov. Tony Evers proposed in his state budget earlier this year that Republicans nixed.
Instead, Republican lawmakers wrote their own version of a “no tax on tips” bill, which echoes a popular campaign promise from President Donald Trump last year that has since become federal law as part of his sweeping tax and immigration overhaul.
At a hearing of the Assembly’s Ways and Means committee on Thursday, lawmakers took public testimony about the GOP bill, which would offer a state tax deduction for both cash and credit card tips up to $25,000 per year, phased out for higher-earning households.
“The folks that receive tips are not wealthy people. They’re not usually middle-class people. Usually, they’re working class people that are trying to get themselves to that middle-class level, to get themselves their American dream,” said Rep. Ron Tusler, R-Harrison.
The Wisconsin Hotel and Lodging Association and Wisconsin Restaurant Association both back the bill, saying it would offer financial relief to people who work in their industries.
Krissy Kaminski Sigmund, who is a member of both groups, said the legislation would affect 100 employees at Chula Vista Resort, a waterpark hotel in Wisconsin Dells where she is also vice president.
“It would foster a stronger workforce for our resort, especially in a county that struggles to keep employment,” she said. “This legislation is a critical tool for our workforce recruitment.”
Rep. Joan Fitzgerald, D-Fort Atkinson, said the national conversation around taxes on tips has been playing out in her own home, where her husband is a career bartender. She said that he is not the kind of low-income worker the bill purports to support,and argued the conversation should focus on supporting people who earn low wages regardless of industry.
“He doesn’t see his tips as any different from any other wages than anyone else earns, and that his responsibility to pay taxes to support the government is the same whether his employer is paying him or if he’s being tipped,” she said.
“Why just tips?” she added. “If this is such a great strategy, I would think we need a bigger conversation about how we tax wages on lower income workers.”
The Wisconsin Department of Revenue’s estimate about the cost of the bill looked at an earlier version that did not include the $25,000 cap and only applied to cash tips. That estimate said exempting all tips from income tax would reduce state revenue by $33.7 million per year. It is unclear what the cost would be when the cap is applied.
The GOP bill was introduced on Feb. 17, a day before Evers unveiled his proposed state budget, which included exempting only cash tips from income tax. According to state estimates, that would have cost the state about $6.7 million in income tax revenue per year. The proposal would not have applied to tips charged on a credit card.
According to the Department of Revenue, tips made up about 0.51 percent of all reported income in Wisconsin in 2021. That number has likely increased since restaurants returned to full strength following the COVID-19 pandemic.
‘No tax on tips’ proposals are increasingly popular among both parties
Trump first proposed eliminating income tax on tips when on the campaign trail last summer, saying he was inspired by a conversation with a Las Vegas service worker. His opponent in the presidential race, former Vice President Kamala Harris, later also backed the proposal.
A temporary version of the proposal has since become federal policy, after being included in Trump’s signature “one big Beautiful bill” law. That provision, in effect through 2028, allows workers to deduct up to $25,000 in tips from federal income tax. Like the Wisconsin proposal, it is gradually phased out for households that earn above a certain threshold.
An earlier standalone version of that bill passed the U.S. Senate unanimously.
Republicans have spearheaded efforts to render the policy permanent in other states. That includes proposals in Illinois, Massachusetts, New Jersey, New York, North Carolina, Oregon and Pennsylvania.
According to data from Square analyzed by CNBC, the average American restaurant worker derives about 22 percent of their income from tips. Wisconsin restaurant workers are above that average, earning more than 28 percent of their income from tips.
But many occupations outside of restaurants depend on tips. According to The Budget Lab at Yale, 4 million people worked in tipped occupations in 2023. These workers on average are lower income and younger than the average American, and more than a third already pay no income tax because they do not earn enough.
Lawmakers debate ‘no tax on tips’ proposal, after nixing it from Evers’ budget was originally published by Wisconsin Public Radio.
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