Changing Wisconsin law to mirror the federal law exempting tips and overtime from the income tax would reduce state collections by $2.7 billion over the next decade, according to a new report from Forward Analytics.
Still, that boost in take-home pay for those who are impacted could boost consumer spending. The report also found the change could create an incentive to move toward wage structures more reliant on tips or overtime to take advantage of the exemption.
Forward Analytics is an arm of the Wisconsin Counties Association.
This session, Dem Gov. Tony Evers vetoed a GOP bill to exempt tips from the state’s income tax. The governor and GOP legislative leaders then included provisions in a $1.8 billion surplus package that would have exempted tips and overtime from the state income tax. That legislation cleared the Assembly but failed in the Senate when all 15 Dems and three majority Republicans voted against the proposal.
According to the report, if implemented, there would be a $716 difference in the tax liability for two Wisconsin workers each earning $40,000 annually. That’s if one made $15,000 of their income from tips while the other’s earnings were solely from traditional wages.
Meanwhile, those making between $85,000 and $132,500 a year would see the biggest benefit, assuming a certain share of tipped income.
When the $1.8 billion budget surplus package with the exemption for tips and overtime was proposed, the Legislative Fiscal Bureau estimated the chance would reduce individual income tax collections by $232.8 million in 2026-27 and $197 million in 2027-28.
The Forward Analytics report projected what the impact would be between 2028 and 2037.
