Assembly members voted by broad margins to stop taxing tips for the next three years.
AB 38 would exempt employees from paying state income tax on cash and electronic tips through 2028. The Assembly voted 61-33 to send the bill to the Senate, with a handful of Democrats crossing party lines.
“No tax on tips is a way for us to help our working class become financially stronger,” Rep. Ron Tusler, R-Harrison, said in a press conference ahead of the floor vote.
The exemption covers tipped income up to $25,000 and phases out for individuals whose federal gross income exceeds $150,000 per year or joint filers whose income exceeds $300,000. It mirrors a federal deduction on tipped wages passed as part of the One Big Beautiful Bill Act.
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GOP leadership framed the bill as a win for affordability amid rising costs of living in the state.
Speaker Robin Vos, R-Rochester, spoke on the floor in the bill’s favor, ending his remarks by cajoling the minority party to “show, like other states have, that Democrats are OK with voting for a tax cut.”
The GOP majority, however, rejected an amendment from Rep. Ryan Clancy, D-Milwaukee, that would have increased the tipped minimum wage to $5.90 per hour.
According to the Legislative Fiscal Bureau, the impact of the proposed state tax break would be $97.3 million in fiscal year 2026-27, $48.9 million in 2027-28 and $48 million in 2028-29. Like the federal break, the state proposal would expire after 2028.
The larger price tag for 2026-27 would be due to people filing amended tax returns after the close of the 2025-26 fiscal year to cover what they received in calendar year 2025.
Tusler said that Department of Revenue officials told him they would “consider” updating their tax forms so residents could receive the tax break this year instead of a refund in 2027.
See the roll call here.
