INC TX-DEDUCTION FOR TIPS

104th Regular Session Introduced by Chris Balkema and 4 co-sponsors

Illinois now allows a deduction for gratuities included in federal AGI, reducing base income for individuals starting immediately if they itemize or use the base-income framework.

Summary of SB 3792 (Illinois, 104th General Assembly)

Purpose and intent

SB 3792 amends the Illinois Income Tax Act to create an income tax deduction for gratuities (tips) that are included in a taxpayer’s federal adjusted gross income. The bill takes effect immediately upon passage. The primary aim is to allow Illinois residents to subtract gratuities that are already included in federal income, aligning Illinois base income with this specific federal inclusion.

Key provisions and changes

New deduction for gratuities (NN): Beginning with the tax year, or for one taxable year beginning on or after January 1, 2027, an amount equal to the gratuities that are included in the taxpayer’s federal adjusted gross income. This is added to the list of many other potential deductions and modifications that affect base income under Section 203.

Scope within base income framework: The deduction is incorporated into the broad framework that defines base income for individuals (Section 203(a)) and is one of numerous potential adjustments that can increase base income for Illinois purposes. This means:

For individuals, base income is typically adjusted gross income plus and minus various items; the gratuity deduction would reduce Illinois base income to the extent gratuities are included federally.

No new corporate change noted for gratuities: The bill description primarily highlights an individual (not corporate) modification. The primary text shown focuses on individual base income (Section 203(a)) with a dedicated (NN) subparagraph, and there is no separate gratuity-related deduction listed for corporations in the excerpt.

Immediate effectiveness: The act states “Effective immediately,” meaning the deduction would apply in the current tax year as soon as the bill becomes law.

Who is affected

Illinois residents who report individual income tax: Taxpayers who have gratuities included in their federal adjusted gross income and who itemize or compute Illinois base income under the existing framework would be eligible to deduct those gratuities on their Illinois return.

Corporate filers (potentially unaffected): The excerpt does not indicate a gratuity-specific deduction for corporations; the primary change targets individual taxpayers under Section 203(a).

Procedural and timeline aspects

Legislative status: Introduced February 5, 2026, by Senator Craig Wilcox.

Effective date: Stated as immediate upon enactment (no separate sunset or phase-in noted in the provided text).

Practical impact

The deduction could reduce Illinois base income for taxpayers who have gratuities included in their federal AGI, potentially lowering Illinois taxable income and liability for those affected.

Given the breadth of the Subparagraph listings (D-15 through NN and others), the gratuity deduction sits among many other adjustments, meaning overall impact will depend on an individual’s specific tax profile and other add-backs or subtractions.

If you want, I can parse the bill’s sections to quantify potential tax impact under specific scenarios (e.g., different income levels and gratuity amounts).