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SB 823

AN ACT RELATING TO CRIMINAL PROCEDURE -- ARREST

2025 Regular Session Introduced by Jake Bissaillon and 3 co-sponsors

The bill requires tipped workers to be paid at least the state minimum wage directly (eliminating tip credits), with staged increases through 2028 and clearer service-fee disclosur

04/01/2025 Committee recommended measure be held for further study
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Bill Summary · SB 823

SB 823 — "No Tax on Tips Act" — Summary

Status: Introduced Jan 28, 2025 (Md.); referred to Finance and Budget & Taxation. Fiscal analysis available. Key sponsor: Sen. McCray.

This bill restructures Maryland’s rules on minimum wage, tip credits, employer taxation of tips, and consumer disclosures for restaurant “service fees.” It phases in a higher State minimum wage, phases out the tip credit so tipped workers must be paid the full State minimum wage directly, creates limited tax relief for workers and employers during the transition, and requires disclosure when restaurants add service fees.

Main purpose / intent

  • Ensure tipped workers receive at least the State minimum wage paid directly by their employer (eliminate reliance on tips to reach the wage floor).
  • Increase transparency for customers about service fees.
  • Provide limited tax adjustments to smooth the transition for workers and employers.

Key provisions and timelines

  • State minimum wage schedule (unless federal minimum is higher):

    • $17.00/hour beginning Jan 1, 2027
    • $18.50/hour beginning Jan 1, 2028
    • $20.00/hour beginning July 1, 2028

  • Tip-credit phaseout:

    • For pay periods starting Jan 1, 2027, employers may include a tip-credit up to (State minimum wage less) $12.00.
    • For the 6-month period beginning Jan 1, 2028, allowable tip-credit is the State minimum wage less $13.50.
    • Beginning July 1, 2028, employers may no longer include any tip credit; employers must pay tipped employees directly at least the State minimum wage. (The bill does not prohibit customers from tipping.)

  • Consumer protection for “service fees” at food service facilities:

    • Defines “service fee” as a fee added to a customer’s bill separate from menu prices and sales tax.
    • A food service facility may not impose a service fee unless it prominently discloses, before the customer orders, the fee’s amount, purpose, and whether it is paid directly to employees in addition to wages.
    • Violations are treated as unfair, abusive, or deceptive trade practices under the Maryland Consumer Protection Act (MCPA), subject to MCPA enforcement and penalties.

  • Tax adjustments:

    • Individuals: Allows a subtraction modification for “qualified tips” (tips received in occupations customarily compensated by wages + tips) when computing Maryland taxable income.
    • Employers (tax years 2027 and 2028 only): A nonrefundable income tax credit equal to 50% of the difference between the State minimum wage actually paid and the then-allowable tip credit amount; credit capped at the taxpayer’s tax liability or $10,000; no carryover.

  • Administrative requirements:

    • The Commissioner must adopt regulations requiring restaurant employers that use a tip credit to provide tipped employees with written/electronic wage statements each pay period showing the effective hourly tip rate (cash wages plus reported tips for tip-credit hours).
    • Department notice of these regulations must be posted on the Department’s website.

Who is affected

  • Tipped workers in food service, hospitality, and other industries (directly benefit from higher base pay and the subtraction for tips).
  • Employers (restaurants, bars, hotels, etc.) — face higher direct wage costs especially after July 1, 2028; limited, temporary tax credit in 2027–2028.
  • Consumers — gain clearer disclosure of mandatory service fees (may see menu displays of fee amounts/purposes).
  • State and local governments — fiscal impacts from tax modifications, wage increases, and potential changes in payroll tax collections and program costs.
  • Small businesses — noted to be meaningfully affected by higher labor costs.

Fiscal and policy impacts (as analyzed)

  • State fiscal effect: No effect FY2026. Beginning FY2027, state revenues likely decline (due to the tip subtraction); additional revenue loss in FY2028–29 from the employer tax credit. State expenditures likely increase (higher wages) — potentially significant.
  • Local governments: Increased wage costs and decreased income tax receipts beginning FY2027; highway-user revenue impacts possible where corporate credits are claimed.
  • Small businesses: Potentially meaningful negative financial impact from higher direct wage requirements.

Other notes

  • The bill preserves the ability for customers to tip; it changes how employers must treat tips in meeting minimum-wage obligations.
  • The fiscal analysis indicated enactment may be contingent on a constitutional amendment (proposed separately) establishing the right to be paid the State minimum wage regardless of tips; confirm current enactment contingencies in later bill versions.
  • The bill requires regulatory implementation (wage-statement rules) and enforcement via existing consumer protection mechanisms.

For questions about how the tax subtraction or the employer credit is claimed in practice, or business compliance timelines, let me know and I can extract the specific statutory language and draft compliance checklists.

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

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