Wisconsin pursuing no tax on tips as federal government eyes similar cuts

MADISON Wis. (CBS 58) -- For servers, bartenders and other tipped workers -- every dollar counts.

And now, there's a proposal in Wisconsin that could mean more of that money stays in their pockets.

State lawmakers are proposing to make tips tax free. It comes as Congress is also looking to fulfill President Donald Trump's pledge to eliminate federal taxes on tipped income.

Peter McElvanna, owner of Coopers Tavern in Madison, said both efforts would be a huge benefit to the service industry.

"A majority of people that work in this industry are not millionaires," McElvanna said. "I just know our staff would definitely appreciate the no-tax."

Republican lawmakers introduced the no-tax on tips bill in January. It received a public hearing in the Senate Committee on Agriculture and Revenue on Wednesday, May 21.

Governor Tony Evers also proposed eliminating state income taxes on tips in his state budget shortly after the bill was unveiled.

While the policy could benefit tipped workers, it would also lead to a decrease in state revenue, which would require lawmakers to make adjustments while crafting the 2025-2027 budget.

A fiscal estimate from the Wisconsin Department of Revenue projects that exempting all tip income from state income tax would reduce state revenue by $33.7 million annually.

In 2023, there were roughly 4 million U.S. workers, or 2.5%, that were tipped, according to estimates from The Budget Lab at Yale University.

If taxes on tips were eliminated, the average tax cut for families who benefit would be roughly $1,700, the report found. The lowest earners would save about $200.

On Capitol Hill, the Senate unanimously passed the No Tax on Tips Act on Tuesday that would create a federal income tax deduction up to $25,000 per year, with some limitations.

Some business owners believe while no tax on tipped income could improve morale and recruitment, it could also create headaches for employers who report tips through payroll.

"There was always the thought of, 'Well, okay, if that's federal taxes, that's a big part—that's great. But we're still going to have to pay the state taxes. So then, how do we match that up?'" said Chris Wiken, owner of the Packing House Milwaukee.

Wisconsin lawmakers say the bill is still in its beginning stages, but for now it's generating a buzz in an industry where every dollar matters.

"Everyone could use a little bit more money in their pocket, especially now," Wiken said.