A bill for an act exempting cash tips from the individual income tax, and including applicability provisions.(See HF 1030.)
Summary
HF 268 would create a new subtraction from Iowa individual income tax for cash tips, to the extent those tips are included on statements furnished to an employer under section 6053(a) of the Internal Revenue Code. In practical terms, qualifying tipped income would be removed from taxable income for state income tax purposes, reducing the tax burden on workers who receive cash tips and report them through their employer.
The bill also sets an effective date: it applies to tax years beginning on or after January 1, 2026. The measure amends Iowa Code section 422.7, which governs individual income tax subtractions, by adding a new subsection for cash tips. The bill’s explanation states that the exclusion applies only to cash tips reported to an employer as required by federal law, so it is not a blanket exemption for all gratuities or unreported tip income.
Impact
HF 268 would change Iowa’s individual income tax base by allowing a subtraction for reported cash tips, thereby lowering taxable income for affected workers and reducing state revenue to the extent the subtraction is claimed. It would primarily affect tipped employees and employers who collect and report tip information, while leaving the federal reporting requirement in place. The bill would amend Iowa Code section 422.7 and would apply prospectively to tax years beginning January 1, 2026.
Sentiment
The available legislative history suggests the bill was received favorably, at least at the committee level. The House Ways and Means Committee reported the bill out unanimously, 24-0, indicating broad support among committee members. No committee transcript is available, so there is no recorded debate in the provided materials, but the vote suggests little visible opposition at that stage.
Contention
The main policy issue is whether cash tips should be exempt from state income tax and, if so, how to define and verify eligible tips. Supporters are likely to view the bill as tax relief for service workers and a way to recognize the irregular and often modest nature of tipped income. Potential concerns would center on revenue loss, fairness relative to other wage earners, and administration or compliance issues tied to distinguishing reported tips from unreported cash gratuities. The bill’s limitation to tips included on employer statements appears designed to address some of those concerns by tying the subtraction to federal reporting rules.
A bill for an act creating a catastrophic savings account and modifying individual income taxes for account holders and including applicability provisions.(See HF 622, HF 988.)
A bill for an act creating a catastrophic savings account and modifying individual income taxes for account holders and including applicability provisions.(Formerly HSB 149; See HF 988.)
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A bill for an act creating a catastrophic savings account and modifying individual income taxes for account holders and including applicability provisions.(Formerly HF 622, HSB 149.)