A bill for an act exempting cash tips from the individual income tax, and including applicability provisions.
Summary
HF 361 would amend Iowa’s individual income tax law to allow a subtraction from taxable income for cash tips, to the extent those tips are reported to an employer on the federal statement required by Internal Revenue Code section 6053(a). In practical terms, tipped workers who properly report cash tips would no longer pay Iowa income tax on that reported tip income.
The bill applies prospectively to tax years beginning on or after January 1, 2026. It does not create a new deduction for all tip income; rather, it ties the state tax benefit to tips that are already reported through the employer reporting system, which helps define eligibility and administration.
Impact
The bill would amend section 422.7 of the Iowa Code, which governs subtractions from Iowa taxable income, by adding a new subtraction for reported cash tips. This would reduce state income tax liability for qualifying tipped employees and could modestly reduce state revenue depending on the amount of reported tip income claimed. Employers and taxpayers would need to continue using federal reporting rules to document the eligible amounts.
Sentiment
There is no recorded committee debate or vote history in the provided materials, so the bill’s sentiment cannot be measured from discussion. Based on the text alone, the measure appears to be a targeted tax relief proposal for tipped workers, with a straightforward administrative design tied to existing federal reporting requirements. Its referral to Ways and Means suggests it was treated as a tax policy measure rather than a controversial regulatory change.
Contention
No specific points of contention are documented in the provided transcript or vote history. Potential areas of debate, if the bill advances, would likely include the revenue impact on the state, whether the tax break should be limited to reported cash tips rather than all gratuities, and whether the policy favors one category of workers over others. Any disagreement would likely center on tax fairness, compliance, and fiscal cost rather than on the mechanics of implementation.
A bill for an act relating to individual income taxation by exempting certain amounts received from nonqualified deferred compensation plans and including retroactive applicability provisions.
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.)
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.)