If enacted, HB520 will amend Chapter 235 of the Hawaii Revised Statutes to create a tax exclusion for tips received by employees. This exclusion will apply to gross income, adjusted gross income, and taxable income derived from tips reported by tipped employees. The bill intends to ease the financial burden on employees who rely on tips as a significant part of their income, allowing them to retain more of their earnings. The state’s director of taxation will be responsible for preparing the necessary forms and guidelines to implement this exclusion.
House Bill 520 (HB520) proposes the exclusion of tips from state income taxation in Hawaii. The legislature recognizes a growing movement at the federal level to exclude tips from taxation, and believes that implementing a similar measure at the state level would significantly aid local small businesses in attracting qualified employees. This bill aims to create a more favorable economic environment for sectors heavily reliant on tipping, such as hospitality and food service industries.
Notable points of contention may arise from the potential implications of this tax change on state revenue, as excluding tips from taxable income could result in decreased tax revenues. While proponents argue that the measure is necessary to support small businesses and promote fair wages for employees, critics may voice concerns regarding its long-term financial impacts on state programs funded by income tax revenue. Moreover, the bill's effective date is set for taxable years beginning after December 31, 2025, which might lead to debates about its timely implementation and anticipated outcomes.