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HF 1030

A bill for an act exempting qualified tips from the individual income tax, and including applicability provisions.

2025-2026 Regular Session

Exempts up to $25,000 of qualified tips from Iowa income tax for filers with net income under $155,000, now including card tips; starts 2026, contingent on federal law.

Rereferred to Ways and Means.
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WeVote Research Nonpartisan
Bill Summary · HF 1030

Summary of HF 1030 (Exemption from Income Tax for Qualified Tips)

Purpose and intent

HF 1030 would exclude a portion of qualified cash tips from Iowa individual income tax for eligible taxpayers. The bill targets workers in occupations that traditionally received tips, allowing an exemption of up to $25,000 of tips from net income for taxpayers with a. net income under $155,000. The overarching goal is to reduce the tax burden on tipped workers by excluding a substantial portion of tip income from Iowa income tax, starting in tax year 2026, subject to federal conformity.

Key feature added by Amendment H-1276
- Expands tip scope to include tips received through credit or debit card payments, in addition to cash tips.
- Clarifies definitions and administration, and aligns with existing Internal Revenue Code reporting (IRC §6053(a)).

Key provisions

  • Exemption amount and eligibility

    • Taxpayers with net income under $155,000 may exclude up to $25,000 of “qualified tips” from net income for Iowa individual income tax purposes.
    • “Qualified tips” include cash tips and, per amendment, tips received via credit/debit card payments, reported to employers as required by IRC §6053(a).

  • Net income and definitions

    • Net income is calculated without regard to the tip deduction.
    • “Qualified tips” are tips received in occupations that traditionally and customarily received cash tips before December 31, 2023.

  • Administration

    • The Iowa Department of Revenue (IDR) would adopt administrative rules to implement the provision.

  • Contingent applicability

    • Applies to tax years beginning on or after January 1, 2026.
    • If the federal government enacts legislation allowing a deduction for qualified tips for federal income tax purposes, HF 1030 would not apply in the same tax year that federal law provides that deduction.

Who is affected

  • Primary beneficiaries: Iowa individual income tax filers with:

    • Net income under $155,000, and
    • Employment in occupations that traditionally received cash tips before 12/31/2023,
    • Who receive and report tips to employers (per IRC §6053(a)).

  • Tip types: Both cash tips and, under amendment, tips from card-based payments.

Fiscal impact and timing (as analyzed in the Fiscal Note)

  • General Fund revenue impact

    • FY 2026: -$5.6 million
    • FY 2027: -$12.9 million
    • FY 2028: -$13.2 million
    • FY 2029: -$13.5 million
    • FY 2030: -$13.8 million
    • FY 2031: -$14.1 million

  • Local option income surtax (affecting school funding)

    • FY 2026: $0
    • FY 2027: -$319,000
    • FY 2028: -$327,000
    • FY 2029: -$334,000
    • FY 2030: -$342,000
    • FY 2031: -$350,000
    • Note: The surtax is projected to drop as state tax liability decreases.

  • Assumptions

    • 38,728 taxpayers in TY 2024 would be eligible for exemption (per W-2 Box 7 tips).
    • Average tips: about $8,000; average total wage (including non-tip wages): about $24,000.
    • Effective Iowa income tax rate assumed at 3.8% for planning purposes.
    • Withholding changes would begin January 1, 2026.

Procedural and timeline details

  • Introduced: April 17, 2025
  • Amendments: Amendment H-1276 filed (April 22, 2025)
  • Fiscal note: Filed April 22, 2025
  • Legislative actions:
    • Rereferred to Ways and Means on May 15, 2025
    • The bill includes a contingent applicability clause tied to federal tax changes

Additional context

  • The bill aligns with Iowa’s practice of conforming to federal tax changes when Congress acts, but currently federal law has not exempted cash tips from the federal individual income tax.
  • Administrative burden is described as minimal, with IDR responsible for implementing rules.

This summary captures the bill’s main purpose, key provisions (including the scope expansion in Amendment H-1276), potential effects on eligible taxpayers, and the projected fiscal impact and timeline.

Compiled from official sources — confirm details with the bill’s official record.

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