HB575 would create a new Hawaii income tax deduction for tips received by tipped employees. The deduction would apply to the amount of tips reported by the employee to the employer for federal payroll tax purposes under the Federal Insurance Contributions Act (FICA). The bill defines “tips” as gratuities or voluntary monetary contributions from customers that are reported to the employer, and defines a “tipped employee” as someone who receives more than $30 per month in gratuities.
The Department of Taxation would be directed to prepare the forms needed to claim the deduction, may require proof of eligibility, and may adopt administrative rules to implement the new provision. The deduction would apply beginning with taxable years after December 31, 2025, so it would not affect prior tax years.
Impact
HB575 would amend chapter 235 of the Hawaii Revised Statutes by adding a new personal income tax deduction tied specifically to reported tips. In practical terms, it would reduce taxable income for qualifying tipped workers, potentially lowering state income tax liability for employees in service occupations that rely on gratuities. It would also create new administrative responsibilities for the Department of Taxation, including form development, verification procedures, and rulemaking.
Sentiment
There is no recorded committee transcript or vote history available for HB575, so no direct legislative debate or formal sentiment can be assessed from the provided materials. Based on the bill text and report description alone, the measure appears to be framed as a targeted tax relief proposal for tipped workers.
Contention
The main potential points of contention are likely to be the revenue impact on the state, the administrative burden of verifying reported tips, and the scope of eligibility for workers who qualify as “tipped employees.” Because the deduction is limited to tips reported for FICA purposes, any discussion would likely focus on compliance, documentation, and whether the policy should apply broadly to all tipped income or only to reported amounts. No specific objections or supporters are identified in the provided record.