LoginWith ‘no tax on tips’ out of the budget, Wisconsin lawmakers turn to bill mirroring federal law
Wisconsin lawmakers heard testimony Thursday on a bill to make tips for restaurant servers and other workers exempt from Wisconsin's state income tax. (Getty Images)
Wisconsin policymakers approved more than $1.3 billion in tax cuts in the latest state budget but the exclusion of a “no tax on tips” proposal has lawmakers pushing ahead with a bill that would line up state law with a new federal law.
Bill coauthor Rep. Ron Tusler (R-Harrison) said during a hearing in the Assembly Ways and Means committee that lawmakers should help working class people who are “trying to get themselves to that middle class” with Assembly Bill 38. A hearing on the bill was held in the Senate in May, though it has yet to come up for vote in either chamber.
“When I was a younger man, I was a waiter at Perkins, and I received tips. I also received tips for a couple years as a valet, and folks that receive tips aren’t just waiters and valets, but also housekeepers, bartenders, delivery drivers, massage therapists, hairdressers, taxi drivers, tour guides,” Tusler said. “Those are the type of people we’re talking about, trying to help with this bill, trying to not tax and as representatives, these are great folks for us to target, and as Christians, we should always be trying to help the poor.”
President Donald Trump’s “One Big Beautiful Bill” signed into law on July 4 includes a federal provision that will allow workers to deduct up to $25,000 in tips annually from their taxable income. Those earning more than $150,000 aren’t eligible for the deduction.
The Wisconsin bill and a recent amendment to it seeks to implement the same policy when it comes to the state income tax, which currently considers tips as taxable income. The deduction would apply to tips whether paid by cash or credit. Similar to the federal law, the provision will go into effect starting tax year 2025 and sunsets after tax year 2028 — around the end of Trump’s second term in office.
“Any time that we can allow people to keep more of their hard-earned money — that’s going to be something that I’m supporting,” Sen. Andre Jacque (R-New Franken) told the committee.
Erin Vranas, co-owner of Parthenon Gyros located in downtown Madison and chair of the Wisconsin Restaurant Association’s Board, said many restaurant employees are struggling with semi-unpredictable income.
“Every dollar matters, so this bill really could help provide meaningful relief,” Vranas said, adding that it would also help restaurants trying to recruit and retain employees. “Wisconsin restaurants face ongoing workforce shortages, and I understand this isn’t just a restaurant thing, but we definitely feel it in this industry. AB38 will help us recruit and retain staff, making restaurant jobs more competitive and sustainable. When employees keep more of their hard-earned tips, then they’re more likely to stay and grow and see hospitality as a sustainable career, which strengthens both our businesses and Wisconsin as a state.”
The minimum wage for tipped employees in Wisconsin is currently $2.33 per hour. Employers are required to make up the difference if an employee’s combined wages and tips do not equal the regular minimum wage of $7.25 per hour.
Susan Quam, executive vice president of the Wisconsin Restaurant Association, said she only knows of two restaurants that pay the minimum wage. Those restaurants have a $100 per person check average and employees typically make $20 per customer “every single time they work, so we’re talking about folks who are making $100 to $150 dollars an hour in tips.” WRA, a nonprofit trade association that represents thousands of food, beverage and hospitality businesses, supports the bill.
“The vast majority of our members tell us that they’re paying well above that $2.33 to their tipped employees, some of them higher than the $7.25 minimum wage,” Quam said. “The marketplace is dictating what that base wage is, not necessarily the fact that they are getting tips.”
Tusler explained that employees would still need to report tips, both because there is a limit on the tax deduction and because tipped employees need a record of their full income when applying for loans.
“It would make it more difficult for those tip earners to borrow money for their houses or their cars,” Tusler said.
He told the committee the bill would also cut down on confusion between the federal and state policies when people are filing taxes.
The tax break also wouldn’t cost the state much, Tusler said. The Department of Revenue estimates that the state brings in about $33.7 million a year from tips and would lose about that much in each year of the biennium under the proposal.
“That’s it,” Tusler said. “We have a $111 billion budget.”
The recent bipartisan state budget cut taxes by about over $1 billion, but the tips proposal was not included in the budget passed by the Republican-led Legislature and signed by Gov. Tony Evers last month. Evers had included a similar proposal in his budget proposal, but Republican lawmakers threw it out when they started working on the budget.
A bipartisan group of lawmakers, including Jacque, previously introduced the idea of exempting cash tips from taxes in 2019, though it never became law.
The idea picked up steam nationally when President Donald Trump started campaigning on the idea, which led Republican lawmakers to reintroduce the proposal in Wisconsin this year.
The coauthors of the bill expressed frustration that no Democrats have signed onto the bill yet, noting that Evers has supported something similar before.
“This was something where Gov. Evers basically took that previous proposal… cut and pasted that into his budget proposal, so it’s not like there was ever any indication that this wasn’t something that shouldn’t have bipartisan support,” Jacque said. “And I certainly hope that it will going forward.”
Rep. Joan Fitzgerald (D-Fort Atkinson) said during the hearing that she and her husband, who is a bartender, have discussed the issue extensively since it started gaining popularity around the 2024 election and questioned whether a bigger conversation about helping lower-income workers needs to be had.
“I would say encouraging employers to have better benefits, higher pay, better working conditions are also ways we get people to realize the American dream,” Fitzgerald said. “Cutting taxes might be one small part of that, but there’s a broader array of things that we can do, and if, and if that’s your goal, and it’s my goal, then I say we attack some of those other issues.”
Jacque said he understands that tax relief needs to be multifaceted, but said that if the state starts “mandating things on employers that potentially raise costs…, you aren’t going to have customers and those jobs aren’t going to be supported.”
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