Personal income taxes: unemployment insurance: tips.
Impact
This legislative proposal may significantly impact employees who primarily rely on tips as a significant part of their income, such as those in the hospitality and service industry. By not counting tips as income, employees could see reduced tax liabilities, which may enhance their disposable income during the specified tax years. Furthermore, it may relieve employers from the obligation to withhold taxes on tips, potentially easing administrative burdens and costs associated with payroll.
Summary
Assembly Bill 1443, introduced by Assembly Member Castillo, seeks to amend the Revenue and Taxation Code and the Unemployment Insurance Code to provide tax exclusions for tips received by employees. Specifically, it proposes that for taxable years beginning on or after January 1, 2026, and before January 1, 2031, tips will not be classified as gross income under the Personal Income Tax Law. Additionally, tips will also be excluded from the definition of wages when considering income tax withholding and contributions towards unemployment insurance and employment training tax. This exclusion aims to help employees retain more of their earnings overall.
Contention
Though introduced with the intent of assisting low-income workers, potential points of contention may arise surrounding this bill. Some critics may argue that excluding tips from taxable income could lead to gaps in funding for unemployment insurance, given that a portion of these contributions is tied to wages inclusive of tips. There could also be concerns regarding the long-term fiscal implications of such exclusions on state tax revenues. Moreover, the bill's benefits may be perceived as skewed towards sectors that utilize tipping, while further socio-economic issues such as income inequality and fair wages remain unaddressed.
A bill for an act relating to state and local finance and the administration of the tax and related laws by the department of revenue, and including effective date, applicability, and retroactive applicability provisions. (Formerly SSB 1148.) Effective date: 06/01/2023, 07/01/2023, 01/01/2024, 01/01/2026. Applicability date: 01/01/2023, 07/01/2024.
A bill for an act relating to state and local finance and the administration of the tax and related laws by the department of revenue, and including effective date, applicability, and retroactive applicability provisions.(Formerly HSB 187.)