Income Tax - Tips or Gratuities - Subtraction Modification (No Income Taxes on Tips Act)
HB 201 creates a Maryland income tax subtraction modification for certain tip or gratuity income. Under the bill, amounts included in federal adjusted gross income may be subtracted for tips received by workers in specified jobs, including employees of food service facilities, businesses licensed for on-sale alcohol consumption, hotels, and individuals providing passenger-for-hire or taxicab services. The bill is framed as the “No Income Taxes on Tips Act,” and it would apply beginning with taxable years after December 31, 2025.
The bill amends Maryland Tax-General § 10-207 by adding a new subtraction modification for qualifying tipped income. In practical terms, it would reduce Maryland taxable income for eligible workers by excluding covered tips and gratuities from state income tax, while leaving federal tax treatment unchanged. The measure is limited to specific industries and service categories rather than all tipped workers statewide.
HB 201 would change Maryland income tax law by adding a new subtraction modification to the list of items deducted from federal adjusted gross income when calculating Maryland adjusted gross income. The affected statute is Tax-General § 10-207, and the bill would directly benefit workers in food service, hospitality, alcohol-serving establishments, and passenger transportation services by lowering their state taxable income to the extent their tips or gratuities are included in federal income. The bill would take effect July 1, 2026, and apply to taxable years beginning after December 31, 2025.
The available context suggests generally favorable or at least supportive intent, as reflected by the bill’s framing as a tax cut for tipped workers and its introduction by multiple delegates. There are no recorded committee transcripts or votes in the provided material, so there is no evidence of formal opposition or amendment debate in the record supplied. The bill appears to be in an early hearing stage in the House Ways and Means Committee.
The main policy question raised by the bill is scope: it limits the tax break to tips earned in certain occupations and settings, such as food service, hotels, alcohol-licensed businesses, and passenger-for-hire or taxicab services. That creates a potential point of contention over whether other tipped workers should also qualify, and whether the state should carve out income tax preferences for only selected service industries. Another possible issue is the revenue impact on the state budget, though no fiscal debate is included in the provided materials.