What "No Taxes on Tips" Could Mean for Montana Workers
As the discussion surrounding taxation on tip income grows, Montana’s tipped workers find themselves at the center of a potential federal policy shift. Recent developments in Congress are pushing for legislation that could reinstate a tax exemption on tips, a policy that would significantly impact thousands of workers in the state.
The Current Tax Landscape
In 2021, the Montana Legislature passed Senate Bill 399, which aimed to simplify the state income tax system by aligning Montana’s taxable income with federal policies. This change marked the beginning of taxing tipped income at the state level, a departure from previous regulations that excluded tips from taxable income. As a result, tipped workers in Montana have only been subject to state income taxes on their tips since 2023. This year, approximately 26,623 tax filers in Montana reported earning tip income, with total reported tips soaring to around $145 million. The Montana Department of Revenue has estimated that if these tips had been taxed, it could have generated roughly $6.5 million in state revenue.
Senator Greg Hertz, a Republican from Polson and the sponsor of SB 399, noted that there hasn’t been significant backlash from the public regarding the new tax policy. "I think it’s because a lot of people who get tips, they get them in cash, and many of them don’t even report it on their income," Hertz explained. "So I don’t think it’s impacted dramatically a lot of people.”
Federal Proposals on the Horizon
Two federal proposals have recently gained momentum in Congress, both of which aim to implement a "No Taxes on Tips" policy. These proposals are designed to fulfill a campaign promise made by former President Donald Trump, allowing workers earning below $160,000 a year to deduct up to $25,000 in tips from their taxable income. The broad goal of this legislation is to alleviate tax burdens on the lowest-earning tipped workers, potentially reversing Montana’s current policy if enacted.
One proposal has been advanced by the U.S. Senate as a standalone measure, while a separate bill from House Republicans would encompass exemptions beyond tips, including overtime pay. This broader scope could benefit a larger number of employees who receive overtime compensation compared to those who rely on tips.
Outlook for Montana Workers
While enthusiasm for the "No Taxes on Tips" movement is palpable, stakeholders are urging caution. The path to legislation is long, and the details could pivot as Congress deliberates. If passed, these changes would automatically be applied in Montana, given the state’s current alignment with federal tax standards.
Senator Hertz has emphasized the importance of this potential legislative change, suggesting that "that’s a change more people should be paying attention to," particularly the implications it has for workers across various sectors who depend on overtime.
As discussions continue in Washington D.C., Montana residents are encouraged to stay informed about how these developments might affect their earnings and tax obligations in the coming years.
For now, the future of taxation on tips in Montana remains uncertain, but the federal proposals could lead to significant policy changes that would reshape the income landscape for tipped workers across the state.
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