Wisconsin lawmakers are looking to provide financial relief to service industry workers by eliminating state income tax on tipped earnings. Inspired by former President Donald Trump’s proposal at the federal level, Republican Senators Andre Jacque, Rob Hutton, Julian Bradley and Representative Ron Tusler (R) introduced legislation last week to exempt all tipped wages from state taxation. The proposal aligns with Trump’s “No Tax on Tips” plan, which he reaffirmed over the weekend during a campaign stop in Las Vegas. This is not the first time a no taxes on tips have been proposed in Wisconsin, but it’s getting more attention mainly due to President Trump popularizing the policy during his Presidential campaign. Trump has made a serious appeal lately to Congress on this campaign promise.
The legislation comes as Wisconsin grapples with inflation-driven economic pressures, particularly in the hospitality and tourism sectors. With tipped workers facing shrinking take-home pay due to rising costs, Jacque and Tusler argue that removing state taxes on tips would provide a much-needed boost without significantly impacting the state’s budget.
A Direct Financial Benefit for Service Workers
The proposed tax cut would directly benefit waitstaff, bartenders, hotel employees, and other tipped workers who rely on gratuities as a substantial part of their income. Currently, tips are subject to both federal and state income taxes, reducing the actual earnings workers take home. Proponents of the bill argue that exempting tips from state taxation would function as an immediate pay raise, putting more money in workers’ pockets without requiring employer wage hikes.
“With the increases in inflation over the past four years, workers are keeping less of what they earn,” Tusler said in a statement. “What better way to look after so many of our service industry workers than to give them a raise by cutting their taxes?”
A Low-Cost Tax Cut Amid Wisconsin’s Budget Surplus
Supporters of the bill point to Wisconsin’s $4.6 billion budget surplus as evidence that the state can afford to implement the tax cut without jeopardizing other programs or services. Unlike broader tax relief measures, this proposal targets a specific workforce that lawmakers argue has been disproportionately affected by inflation and economic instability.
Republican Push for Broader Tax Relief
At the federal level, Trump’s “No Tax on Tips” initiative is part of a larger Republican tax policy agenda that includes border security funding and increased domestic energy production. The Wisconsin bill mirrors this approach by focusing on direct financial relief for a key segment of the workforce.
The proposal is expected to generate strong reactions from both sides of the aisle. While supporters argue that it will incentivize work and improve financial conditions for tipped employees, opponents may raise concerns about potential revenue losses and fairness in tax policy. Some proponents of lower taxes highlight the policy of picking winners and losers with tax policy. It should be noted that tipped workers are paid an actual wage and that is subjected to federal and state taxes, but the tips are not taxable at the state level under this bill.
As the bill moves forward in the Wisconsin legislature, the debate over its merits will likely center on whether tax-free tips can be implemented effectively and whether similar tax relief measures should be extended to other income brackets.
For Wisconsin’s service industry workers, however, the potential for higher take-home pay without additional state deductions is an appealing prospect. The question now is whether the state legislature will follow through and make tax-free tips a reality.