Bill
HB 2735
Illinois allows a subtraction of gratuities included in federal AGI from Illinois base income, cutting state tax for tipped workers, effective immediately.
Note on source material
- The document you provided includes two different bills that share the number HB 2735 in different jurisdictions: (1) an Arizona bill on electioneering and ballot receptacles (amendments to ARS §§16-515, 16-1017, 16-1018), and (2) an Illinois bill proposing an income tax change. This summary focuses on the Illinois measure titled “INC TX — DEDUCTION FOR TIPS,” which matches the title you requested.
Purpose and intent
- The bill would amend the Illinois Income Tax Act (35 ILCS 5/203) to create a state income tax deduction for gratuities (tips) that are already included in a taxpayer’s federal adjusted gross income (AGI). The stated intent is to exclude those reported tip amounts from Illinois taxable base income, thereby reducing state income tax liability for taxpayers who receive and report gratuities.
Key provisions
- Amends Section 203 (base income defined) of the Illinois Income Tax Act for individuals.
- Adds a subtraction (deduction) to the computation of base income equal to gratuities included in the taxpayer’s federal AGI for the taxable year.
- Effective immediately (per the bill text/synopsis).
Who would be affected
- Primary beneficiaries: individual Illinois taxpayers who receive and report gratuities (tipped employees such as restaurant servers, bartenders, hospitality staff, etc.), because reported tip income would be deductible from Illinois base income.
- State government: Illinois Department of Revenue and the state budget — the change would reduce individual income tax collections to the extent taxpayers claim the new deduction.
- Employers/Payroll: Indirectly affected to the extent employer tip-reporting procedures and payroll reporting inform the taxpayer’s federal AGI; the deduction itself is claimed by individuals on their state return.
Practical and fiscal considerations
- Fiscal impact: The deduction would lower state taxable income and therefore reduce individual income tax revenue. The magnitude depends on the total amount of gratuities reported statewide and taxpayer uptake; the bill text does not include a revenue estimate.
- Administration: The Department of Revenue would likely need to issue guidance on how taxpayers document and claim the deduction (e.g., relying on amounts reported on federal returns). Potential for increased compliance review if the deduction becomes material.
- Interaction with federal tax law: The deduction applies only to gratuities already included in federal AGI; it does not change federal reporting requirements.
Procedural status and sponsors
- Introduced in the Illinois House (catalog shows introduction 2/6/2025 by Rep. Christopher “C.D.” Davidsmeyer). The synopsis notes the bill amends 35 ILCS 5/203 and is effective immediately.
- The document also lists a companion bill SB 1316.
- Your provided “Bill Information” shows other dates and actions (and mixed sponsorship listing). If you need current official status or a fiscal note, consult the Illinois General Assembly website or the Department of Revenue for up‑to‑date actions and revenue estimates.
If you’d like, I can:
- Draft a short fiscal-impact estimate using Illinois tipping and wage data, or
- Provide suggested legislative language (clean statutory text) for the exact subtraction provision.
Compiled from official sources — confirm details with the bill’s official record.
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