HB567 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 an 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 guests, patrons, or customers that are reported to the employer, and defines a “tipped employee” as someone who receives more than $30 per month in gratuities.
The bill also directs the director of taxation to create the necessary forms, allow proof of claims, and adopt rules to administer the deduction. The measure would take effect for taxable years beginning after December 31, 2025, so it would not affect prior tax years.
Impact
HB567 would amend chapter 235, Hawaii Revised Statutes, by adding a new income tax deduction tied specifically to reported tips. This would reduce taxable income for qualifying tipped workers and could lower state income tax liability for employees in service occupations that rely on gratuities. It would also require the Department of Taxation to implement administrative procedures, forms, and verification rules to support the deduction.
Sentiment
Based on the bill text and available legislative context, the measure appears to be framed as a tax relief proposal for tipped workers and was introduced without recorded opposition or committee testimony in the materials provided. Its referral to the Labor and Finance committees suggests it was treated as a fiscal and worker-income issue. No votes or hearing transcripts are available, so broader support or opposition cannot be measured from the record provided.
Contention
The main policy issue is whether tips should be excluded from Hawaii taxable income through a targeted deduction, which would benefit tipped employees but reduce state revenue. Potential points of contention include the administrative burden on the Department of Taxation, the need to verify reported tips, and whether the deduction should apply only to tips reported for FICA purposes. Any debate would likely center on fairness to service workers versus the fiscal cost and complexity of creating a new deduction.