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HB 201

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

2026 Regular Session Introduced by Lauren Arikan and 6 co-sponsors

Maryland bill exempts tips from state income tax via tax deduction, increasing service worker take-home pay but reducing state revenue with unclear funding source.

Hearing 1/29 at 1:00 p.m.
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WeVote Research Nonpartisan
Bill Summary · HB 201

Legislative bill overview

HB 201 would exempt tips and gratuities from Maryland state income tax by allowing them as a subtraction modification on tax returns. This means workers who receive tips would not pay state income tax on that portion of their earnings, though federal taxes would still apply.

Why is this important

Service industry workers—particularly in restaurants, hospitality, and personal services—would see their take-home pay increase without employer action or wage increases. This directly affects an estimated 200,000+ Maryland workers in these sectors and represents foregone state revenue that would need to be made up through other taxes or budget cuts.

Potential points of contention

  • Revenue impact: The state would lose significant tax revenue with no identified replacement funding source, potentially requiring cuts to education, infrastructure, or social services
  • Equity concerns: This benefits only workers in tipped positions while other low-wage workers (retail, manufacturing, home care) receive no comparable tax relief
  • Implementation complexity: Distinguishing reportable tips from unreported cash tips creates audit and compliance challenges; IRS already requires tip reporting
  • Economic efficiency: Tax policy experts debate whether targeted tax cuts for specific industries are more effective than broader approaches like wage increases or earned income tax credits

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

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