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HB 4051

Individual income tax: deductions; exclusion of certain gratuities for tipped employees; provide for. Amends sec. 30 of 1967 PA 281 (MCL 206.30).

2025-2026 Regular Session Introduced by Joe Aragona and 15 co-sponsors

HB 4051 would exclude certain tipped gratuities from Michigan taxable income, reducing taxes for tipped workers and altering employer payroll reporting.

bill electronically reproduced 01/30/2025
#individualincometax:deductions #individualincometax:income #labor:hoursandwages
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WeVote Research Nonpartisan
Bill Summary · HB 4051

Summary — HB 4051 (amendment to MCL 206.30)

Status (as provided): electronically reproduced 01/30/2025; introduced 03/07/2025; referred to Committee on Finance.

Purpose / Intent

HB 4051 would amend section 30 of the Michigan Income Tax Act (1967 PA 281; MCL 206.30) to change how certain gratuities paid to tipped employees are treated for Michigan individual income tax purposes. The bill’s stated intent is to exclude (or otherwise not subject) certain gratuities received by tipped employees from taxable income (i.e., to permit an exclusion or deduction of those gratuities when calculating Michigan taxable income).

Key provisions (based on bill title and citation)

  • Amends MCL 206.30 (the statute that defines “taxable income” and lists additions/deductions to federal adjusted gross income for Michigan tax purposes).
  • Creates an exclusion or deduction in the calculation of taxable income for specified gratuities received by tipped employees (the provided materials do not include the bill’s full text or exact definitional language).
  • By changing the taxable income definition, the bill would affect how individual income tax returns and withholding/reporting are completed for affected workers.

Note: The exact scope (which gratuities are excluded, whether the exclusion applies to employer-distributed tips, pooled tips, cash tips, service charges, tipped wages reported on W-2, or threshold/recordkeeping requirements) was not included in the documents provided. The summary above reflects the bill title and statutory target (MCL 206.30), not detailed statutory text.

Who would be affected

  • Primary: Tipped employees in Michigan (e.g., servers, bartenders, hairdressers, taxi drivers) — those who receive gratuities that the bill proposes to exclude from taxable income.
  • Secondary: Employers in hospitality and service industries (payroll reporting, tip-pooling administration), payroll processors, tax preparers, and the Michigan Department of Treasury (administration and guidance).
  • Potential fiscal effects: reduced individual tax liability for affected taxpayers and corresponding reductions in state income tax receipts to the extent the exclusion lowers overall taxable income. No fiscal estimate was provided in the materials.

Procedural / timeline notes

  • Introduced in early March 2025 (electronically reproduced 01/30/2025); referred to the House Committee on Finance.
  • Next steps (typical): committee hearings, possible amendments, committee vote, House floor action, Senate consideration, and gubernatorial action. No enactment or appropriation information was provided.

Potential impacts and considerations

  • Tax relief for tipped workers: would lower Michigan taxable income for workers receiving covered gratuities, potentially increasing after-tax income.
  • State revenue: depending on the size of the exclusion, state individual income tax receipts could decrease; the bill materials provided do not include an estimated revenue impact.
  • Administration and compliance: implementing guidance would be needed for employers and payroll processors on how to identify, report, and exclude qualifying gratuities; changes to withholding rules may be necessary.
  • Ambiguity risk: the ultimate impact depends heavily on definitions and rules in the bill’s full text (e.g., which payments qualify, documentation requirements, interaction with federal reporting).

What to watch

  • The bill’s full text for precise definitions (what counts as a “gratuity,” treatment of pooled tips, cash vs. noncash tips, and recordkeeping).
  • Committee reports, fiscal analyses, and any proposed amendments that narrow or broaden the exclusion.
  • Official revenue estimates from the state (Treasury or budget office) and implementation guidance if/when the bill advances.

If you want, I can:
- Track subsequent committee actions and amendments and update this summary.
- Draft a short stakeholder memo (for employers, payroll vendors, or tipped workers) listing likely operational changes to expect if the bill advances.

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

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