If enacted, SB1153 will amend Chapter 235 of the Hawaii Revised Statutes to explicitly exclude tips from gross income, adjusted gross income, and taxable income for state tax purposes. This change is projected to benefit workers, particularly those in hospitality and service industries, by allowing them to retain more of their earnings. The measure is set to go into effect for taxable years beginning after December 31, 2025, reinforcing the forward-looking approach of the bill.
Senate Bill 1153 proposes the exclusion of gross income derived from tips received by employees from state income taxation. The motivation behind this bill is to align state taxable income with a growing trend at the federal level, which seeks to recognize that tips are a vital part of income for many workers, particularly in the service industry. By prohibiting the taxation of tips, the bill aims to aid local small businesses in attracting and retaining qualified employees, enhancing their competitiveness in the labor market.
While the bill is aimed at fostering a more favorable economic environment for small businesses and their employees, it could also spark debate regarding tax equity and revenue implications for the state. Some may argue that excluding tips from taxation might lead to reducing the overall tax revenue, which is critical for funding public services. Additionally, ensuring compliance and proper reporting by employees could pose challenges for the state Department of Taxation, raising concerns about the integrity and implementation of the new tax structure.