Wisconsin Poised to Eliminate State Income Tax on Tips, Following Federal Lead
2026/01/22 01:47:11
Wisconsin is on the verge of joining a growing number of states offering tax relief to tipped workers, as the state Assembly has passed a bill to eliminate state income tax on tips [[1]]. This legislation mirrors a federal change enacted last summer under President Donald Trump, and aims to provide a financial boost to those who rely on tips as a meaningful portion of their income. The bill now moves to the State Senate for consideration.
Understanding the Current Tax Landscape for Tipped Employees
Currently,tips are considered income and are subject to both federal and state income taxes.This means that tipped employees, such as servers, bartenders, delivery drivers, and salon professionals, must report their tips to their employers, who then withhold taxes from their earnings. While federal law allows employers to use a “tip credit” to offset minimum wage obligations,the tax burden on tips themselves remains.
The complexity arises from how tips are reported and taxed. Employees must accurately track and report all tips received, including both cash and credit card tips. Failure to do so can result in penalties from the IRS and the state Department of Revenue. This process can be cumbersome and often leads to underreporting, creating potential legal issues for workers.
How the Wisconsin Bill Will Change Things
The proposed Wisconsin bill seeks to simplify this process and provide direct tax relief. As written, the bill would allow tipped workers to subtract those earned tips from what they file in their state income taxes [[3]]. This effectively eliminates state income tax on tips, mirroring the federal change.
Specifically, the bill proposes a state tax deduction for both cash and credit card tips, up
