EXPLANATION: CAPITALS INDICATE MAT TER ADDED TO EXISTIN G LAW.
[Brackets] indicate matter deleted from existing law.
*sb0823*
SENATE BILL 823
I3, K3, Q3 5lr1538
CF 5lr1537
By: Senator McCray
Introduced and read first time: January 28, 2025
Assigned to: Finance and Budget and Taxation
A BILL ENTITLED
AN ACT concerning 1
No Tax on Tips Act 2
FOR the purpose of establishing consumer protections related to service fees charged by 3
food service facilities; specifying the State minimum wage rate and tip credit amount 4
that is in effect for certain time periods; prohibiting certain employers of tipped 5
employees, beginning on a certain date, from including a tip credit amount as part 6
of the employees’ wages; allowing a subtraction under the State income tax for 7
certain qualified tips received by individuals during the course of employment; 8
allowing a person a credit against the State income tax for up to a certain amount 9
paid to an employee of the person based on the payment of certain wages and tips; 10
and generally relating to service fees, the payment of wages, tip credits, and State 11
income taxes. 12
BY repealing and reenacting, with amendments, 13
Article – Commercial Law 14
Section 13–301(14)(xlii) 15
Annotated Code of Maryland 16
(2013 Replacement Volume and 2024 Supplement) 17
BY repealing and reenacting, without amendments, 18
Article – Commercial Law 19
Section 13–301(14)(xliii) 20
Annotated Code of Maryland 21
(2013 Replacement Volume and 2024 Supplement) 22
BY adding to 23
Article – Commercial Law 24
Section 13–301(14)(xliv) and 14–1328 25
Annotated Code of Maryland 26
(2013 Replacement Volume and 2024 Supplement) 27
2 SENATE BILL 823
BY repealing and reenacting, with amendments, 1
Article – Labor and Employment 2
Section 3–413 and 3–419 3
Annotated Code of Maryland 4
(2016 Replacement Volume and 2024 Supplement) 5
BY repealing and reenacting, without amendments, 6
Article – Tax – General 7
Section 10–207(a) 8
Annotated Code of Maryland 9
(2022 Replacement Volume and 2024 Supplement) 10
BY adding to 11
Article – Tax – General 12
Section 10–207(qq) and 10–758 13
Annotated Code of Maryland 14
(2022 Replacement Volume and 2024 Supplement) 15
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 16
That the Laws of Maryland read as follows: 17
Article – Commercial Law 18
13–301. 19
Unfair, abusive, or deceptive trade practices include any: 20
(14) Violation of a provision of: 21
(xlii) Section 12–6C–09.1 of the Health Occupations Article; [or] 22
(xliii) Title 14, Subtitle 48 of this article; or 23
(XLIV) SECTION 14–1328 OF THIS ARTICLE; OR 24
14–1328. 25
(A) (1) IN THIS SECTION THE F OLLOWING WORDS HAVE THE MEANINGS 26
INDICATED. 27
(2) “FOOD SERVICE FACILITY ” HAS THE MEANING STAT ED IN § 28
21–301 OF THE HEALTH – GENERAL ARTICLE. 29
(3) “SERVICE FEE” MEANS A FEE ADDED BY A FOOD SERVICE 30
FACILITY TO A CUSTOM ER’S TOTAL CHARGE THAT IS SEPARATE FROM : 31
SENATE BILL 823 3
(I) THE PRICE LISTED ON THE ME NU FOR FOOD , DRINKS, OR 1
MERCHANDISE SOLD BY THE FOOD SERVICE FAC ILITY; AND 2
(II) ANY SALES TAX THE FOO D SERVICE FACILITY I S REQUIRED 3
TO COLLECT. 4
(B) A FOOD SERVICE FACILIT Y MAY NOT CHARGE A S ERVICE FEE UNLESS 5
THE FOOD SERVICE FACILITY PROMINENTLY DISCLOSES TO THE CUS TOMER ON THE 6
MENU OR IN A LOCATIO N THAT IS VISIBLE TO THE CUSTOMER BEFORE THE 7
CUSTOMER PLACES AN O RDER: 8
(1) THE AMOUNT AND PURPOS E OF THE SERVICE FEE ; AND 9
(2) WHETHER THE SERVICE F EE IS PAID DIRECTLY TO EMPLOY EES IN 10
ADDITION TO THEIR WA GES. 11
(C) A VIOLATION OF THIS SE CTION BY A FOOD SERV ICE FACILITY IS: 12
(1) AN UNFAIR, ABUSIVE, OR DECEPTIVE TRADE P RACTICE WITHIN 13
THE MEANING OF TITLE 13 OF THIS ARTICLE; AND 14
(2) SUBJECT TO THE ENFORC EMENT AND PENALTY PROVISIONS 15
CONTAINED IN TITLE 13 OF THIS ARTICLE. 16
Article – Labor and Employment 17
3–413. 18
(a) [(1)] In this section [the following words have the meanings indicated. 19
(2) “Employer”], “EMPLOYER” includes a governmental unit. 20
[(3) “Small employer” means an employer that employs 14 or fewer 21
employees.] 22
(b) Except as provided in subsection (d) of this section and § 3–414 of this subtitle, 23
each employer shall pay: 24
(1) to each employee who is subject to both the federal Act and this subtitle, 25
at least the greater of: 26
(i) the minimum wage for that employee under the federal Act; or 27
(ii) the State minimum wage set under subsection (c) of this section; 28
and 29 4 SENATE BILL 823
(2) to each other employee who is subject to this subtitle, at least the 1
greater of: 2
(i) the highest minimum wage under the federal Act; or 3
(ii) the State minimum wage set under subsection (c) of this section. 4
(c) [(1) Except as provided in paragraph (2) of this subsection, the] THE State 5
minimum wage rate is: 6
[(i) for the 12–month period beginning January 1, 2023, $13.25 per 7
hour; and 8
(ii)] (1) FOR THE 36–MONTH PERIOD beginning January 1, 2024, 9
$15.00 per hour[.]; 10
[(2) The State minimum wage rate for a small employer is: 11
(i) for the 12–month period beginning January 1, 2023, $12.80 per 12
hour; and 13
(ii) beginning January 1, 2024, $15.00 per hour.] 14
(2) FOR THE 12–MONTH PERIOD BEGINNI NG JANUARY 1, 2027, 15
$17.00 PER HOUR; 16
(3) FOR THE 6–MONTH PERIOD BEGINNI NG JANUARY 1, 2028, $18.50 17
PER HOUR; AND 18
(4) BEGINNING JULY 1, 2028, $20.00 PER HOUR. 19
(d) An employer may pay an employee a wage that equals a rate of 85% of the 20
State minimum wage established under this section if the employee is under the age of 18 21
years. 22
3–419. 23
(a) (1) Except as provided in § 3–1604(d) of this title, this section applies to 24
each employee who: 25
(i) is engaged in an occupation in which the employee customarily 26
and regularly receives more than $30 each month in tips; 27
(ii) has been informed by the employer about the provisions of this 28
section; and 29 SENATE BILL 823 5
(iii) has kept all of the tips that the employee received. 1
(2) Notwithstanding paragraph (1)(iii) of this subsection, this section does 2
not prohibit the pooling of tips. 3
(b) Subject to the limitations in this section, an employer may include, as part of 4
the wage of an employee to whom this section applies: 5
(1) an amount that the employer sets to represent the tips of the employee; 6
or 7
(2) if the employee or representative of the employee satisfies the 8
Commissioner that the employee received a lesser amount in tips, the lesser amount. 9
(c) (1) The tip credit amount that the employer may include under subsection 10
(b) of this section may not exceed the minimum wage established under § 3–413 of this 11
subtitle for the employee less [$3.63]: 12
(I) FOR THE 12–MONTH PERIOD BEGINNI NG JANUARY 1, 2027, 13
$12.00; AND 14
(II) FOR THE 6–MONTH PERIOD BEGINNI NG JANUARY 1, 2028, 15
$13.50. 16
(2) BEGINNING JULY 1, 2028, AN EMPLOYER : 17
(I) MAY NOT INCLUDE A TI P CREDIT AS PART OF THE WAGE OF 18
AN EMPLOYEE SUBJECT TO TH IS SUBTITLE; AND 19
(II) SHALL PAY AN EMPLOYE E A WAGE THAT IS AT LEAST EQUAL 20
TO THE STATE MINIMUM WAGE SE T UNDER § 3–413 OF THIS SUBTITLE. 21
(3) THIS SECTION MAY NOT BE CONSTRUED AS PROH IBITING THE 22
PAYMENT OF TIPS TO E MPLOYEES. 23
(d) (1) The Commissioner shall adopt regulations, in consultation with payroll 24
service providers and restaurant industry trade group representatives, to require 25
restaurant employers that include a tip credit as part of the wage of an employee to provide 26
tipped employees with a written or electronic wage statement for each pay period that 27
shows the effective hourly tip rate as derived from employer–paid cash wages plus all 28
reported tips for tip credit hours worked each workweek of the pay period. 29
(2) The Commissioner shall provide notification of the tip credit wage 30
statement regulations on the Department’s website. 31 6 SENATE BILL 823
Article – Tax – General 1
10–207. 2
(a) To the extent included in federal adjusted gross income, the amounts under 3
this section are subtracted from the federal adjusted gross income of a resident to determine 4
Maryland adjusted gross income. 5
(QQ) (1) (I) IN THIS SUBSECTION TH E FOLLOWING WORDS HA VE THE 6
MEANINGS INDICATED . 7
(II) “EMPLOYMENT ” MEANS WORK IN AN OCC UPATION OR 8
INDUSTRY IN WHICH AN INDIVIDUAL IS CUSTOMARIL Y COMPENSATED THROUG H A 9
COMBINATION OF WAGES AND TIPS, SUCH AS BARBERING , COSMETOLOGY , 10
HOSPITALITY, FOOD AND BEVERAGE SE RVICE, PARKING SERVICES , AND CUSTODIAL 11
SERVICES. 12
(III) “QUALIFIED TIPS ” MEANS TIPS RECEIVED BY AN 13
INDIVIDUAL DUR ING THE COURSE OF EM PLOYMENT THAT ARE PA ID TO THE 14
INDIVIDUAL BY AN UNR ELATED PARTY WHO DOE S NOT HAVE AN OWNERS HIP STAKE 15
IN THE BUSINESS PROV IDING THE EMPLOYMENT . 16
(2) THE SUBTRACTION UNDER SUBSECTION (A) OF THIS SECTION 17
INCLUDES THE AMOUNT OF QUALIFIED T IPS RECEIVED BY AN I NDIVIDUAL DURING 18
THE TAXABLE YEAR . 19
10–758. 20
(A) SUBJECT TO THE LIMITA TIONS OF THIS SECTIO N, FOR A TAXABLE YEAR 21
BEGINNING AFTER DECEMBER 31, 2026, BUT BEFORE JANUARY 1, 2029, A PERSON 22
MAY CLAIM A CREDIT A GAINST THE STATE INCOME TAX IN AN AMOUNT EQUAL TO 23
50% OF THE DIFFERENCE BE TWEEN: 24
(1) THE MINIMUM WAGE PAI D TO AN EMPLOYEE OF THE PERSON IN 25
ACCORDANCE WITH § 3–413 OF THE LABOR AND EMPLOYMENT ARTICLE; AND 26
(2) THE TIP CREDIT AMOUN T ALLOWED UNDER § 3–419 OF THE 27
LABOR AND EMPLOYMENT ARTICLE. 28
(B) (1) FOR ANY TAXABLE YEAR , THE TOTAL AMOUNT OF THE CREDIT 29
ALLOWED UNDER THIS S ECTION MAY NOT EXCEE D: 30
(I) THE STATE INCOME TAX IMPO SED FOR THAT TAXABLE 31 SENATE BILL 823 7
YEAR; OR 1
(II) $10,000. 2
(2) ANY UNUSED AMOUNT OF THE CREDIT FOR ANY T AXABLE YEAR 3
MAY NOT BE CARRIED O VER TO ANY OTHER TAX ABLE YEAR. 4
SECTION 2. AND BE IT FURTHER ENACTED, That this Act is contingent on the 5
passage of Chapter(s) ___(S.B. ___ or H.B. ___) (5lr1540 or 5lr1536) of the Acts of the 6
General Assembly of 2025, a constitutional amendment, and its ratification by the voters 7
of the State. 8
SECTION 3. AND BE IT FURTHER ENACTED, That, subject to Section 2 of this 9
Act, this Act shall take effect on the proclamation of the Governor that the constitutional 10
amendment, having received a majority of the votes cast at the general election, has been 11
adopted by the people of Maryland. 12