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Bill Summary · HB 2173

Overview

Missouri House Bill 2173 (HB 2173), introduced in the 2026 session, would modify Missouri income tax rules to create a new deduction related to tips. Specifically, starting January 1, 2027, the bill would allow 100% of tips received by or paid to a tipped employee in occupations that traditionally receive tips to be subtracted from the taxpayer’s federal adjusted gross income when calculating Missouri adjusted gross income.

Main purpose and intent

  • To fully exclude tips earned by tipped employees from federal adjusted gross income (FAGI when determining Missouri adjusted gross income (MO-AGI)) starting in 2027.
  • This creates a full (100%) deduction for tip income at the state level, aligning Missouri’s tax treatment of tips with a targeted exemption.

Key provisions and changes

  • Section 143.121: The bill repeals the current Section 143.121 and enacts a revised version with numerous modifications to the calculation of MO-AGI.
  • New 100% tip deduction (Section 143.121, subsections 3 and 16-15): Beginning in tax year 2027, 100% of tips received by or paid to a tipped employee in occupations that customarily and regularly receive tips would be subtracted from FAGI when determining MO-AGI. The bill defines “tip” using the standards in 29 CFR 531.52 and “tipped employee” per 29 U.S.C. 203(t).
  • Employer withholding: The bill states there shall be no requirement for employer withholding under section 143.191 with respect to an employee’s tips, except as required by federal law.
  • Related structural changes: The bill retains a broad set of existing MO-AGI modifications and deductions (additions and subtractions) but centers the new tip exclusion within the framework of Section 143.121.
  • Effective date: The 100% tip exclusion takes effect for tax years beginning on or after January 1, 2027.

Who would be affected

  • Taxpayers who are in tipped-employee occupations (as defined by federal law, including the Fair Labor Standards Act and related regulations) would benefit from a full deduction of tip income for Missouri income tax purposes.
  • Employers and state tax administration would be affected by the absence of Missouri withholding requirements for tips, aligning with federal guidance, though federal law would still govern withholding obligations.

Procedural and timeline aspects

  • Pre-filing and introduction: HB 2173 was introduced in the 103rd General Assembly and is sponsored by Rep. Perkins (with co-sponsors).
  • Action history: Referred to Emerging Issues (H) on May 15, 2026; previously read in the House on January 7–8, 2026.
  • Effective timeline: The key change (100% tip deduction) becomes effective for tax years beginning on or after January 1, 2027.

Notes

  • The bill is framed as an income tax exemption modification and is similar in concept to prior versions (e.g., HB 198, 2025).
  • The current text includes other broad modifications to MO-AGI, but the standout change is the 100% deduction of tips starting 2027.

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

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