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HB 1005

Income Tax - Tips or Gratuities - Subtraction Modification (No Income Taxes on Tips Act)

2025 Regular Session Introduced by Steve Arentz and 11 co-sponsors

Maryland HB 1005 exempts tips and gratuities from state income tax, increasing service workers' take-home pay but reducing state tax revenue.

Hearing 2/20 at 1:00 p.m.
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Bill Summary · HB 1005

Legislative bill overview

HB 1005 would exempt tips and gratuities from Maryland state income taxation. The bill modifies the state's income tax code to allow taxpayers to subtract tips and gratuities received from their taxable income, effectively making them non-taxable earnings for state purposes.

Why is this important

This directly affects service industry workers—servers, bartenders, delivery drivers, and others who receive tips as part of their compensation. The change would increase take-home pay for these workers while reducing state tax revenue. Maryland currently taxes tips as ordinary income, so this represents a significant policy shift in how the state treats service worker earnings.

Potential points of contention

  • Revenue impact: Removing tips from the tax base will reduce state income tax collections, requiring potential cuts to services or tax increases elsewhere unless offset by spending reductions
  • Equity concerns: The exemption primarily benefits service workers while other low-income workers would continue paying taxes on all earnings, raising fairness questions about differential treatment
  • Implementation complexity: Distinguishing reportable tips from other income on tax returns could create administrative challenges and potential compliance issues for both taxpayers and the tax authority
  • Federal coordination: Tips are federally taxable income, so this creates a state-federal disparity that may complicate tax filing and record-keeping

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

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