(The Center Square) – New legislation proposed in Michigan would make tips no longer taxable income at the state level, a move meant to test Democrat lawmakers’ sincerity to the cause, according to the bill’s sponsor.
“This is [Donald] Trump’s idea that Vice President [Kamala] Harris stole, so now I’m stealing it for Michigan,” State Rep. Joseph Aragona, R-Clinton Township, said. “If the Democrats were smart, they’d pass it to show that this isn’t just a campaign gimmick by Harris, but I’m betting they won’t do that because they know that if the vice president really wanted to get rid of taxes on tips, she could go to Congress and make it happen right now instead of just making promises. She is the sitting vice president, after all.”
The legislation would allow tipped employees to deduct proven tips from their adjusted gross income on their state income taxes, starting in the 2025 tax year. Under current federal tax law, Michigan employees would still have to include tips on their federal income taxes.
Both presidential candidates have promised to end taxes on tips at the federal level, if elected.
One Fair Wage, the organization that pushed for the minimum wage increase in Michigan, opposes eliminating taxes on tips, saying that nearly two thirds of tipped workers would not benefit from the legislation as either they or their household do not earn enough money to pay income taxes.
New research from the Tax Policy Center also estimates such legislation would benefit very few.
“TPC estimates that only 2 percent of households would receive a tax cut if gratuities were free from federal income tax,” TCP Senior Fellow Howard Gleckman wrote Thursday. “Around 3.3 percent of households would receive more take-home pay if tips were exempt from both income and payroll tax, and if there were no limit on eligibility.”
Overall, the report estimated that less than 60% of tipped workers would receive any benefits from making tips tax-free.
Aragona says his bill would also improve working environments for tipped employees in the state.
“Quality waitstaff hustle for their money. Getting rid of taxes on tips will give them an incentive to work more and provide better customer service,” he said. “It will help with staffing issues because more people will want to work in restaurants, and customers will get better service.”
