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SF 1488

Tip income exemption from the individual income tax and tax withholding requirements

2025-2026 Regular Session Introduced by Julia Coleman and 2 co-sponsors

Minnesota bill exempts all tip income from state income tax and eliminates tip withholding requirements, reducing state revenue while providing tax relief to service workers.

Author stricken Eichorn
#revenuedepartment #taxation #taxation-income
0
WeVote Research Nonpartisan
Bill Summary · SF 1488

Legislative bill overview

SF 1488 proposes to exempt tip income from Minnesota's individual income tax and removes tax withholding requirements on tips. The bill would allow workers who receive tips to keep those earnings without state income tax obligations, a significant change from current tax treatment where tips are considered taxable income.

Why is this important

Tips represent a substantial portion of income for service industry workers, and this exemption would provide immediate financial relief to waitstaff, bartenders, housekeeping staff, and other tipped employees. However, it also reduces state tax revenue and raises questions about tax fairness across income types and funding for state services.

Potential points of contention

  • Revenue impact: Removing tip income from the tax base reduces state revenue without identified funding offsets, potentially affecting budget priorities
  • Tax equity concerns: Creating a tax-free category for tips while wage income remains taxable raises fairness questions and could incentivize employers to shift compensation toward tips
  • Compliance complexity: Exempting tips but not wages creates administrative challenges for employers managing payroll withholding and may create confusion about which income qualifies

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

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