Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR
De La Cruz/Hernandez/Gurrol
a
LAST UPDATED
ORIGINAL DATE 1/28/25
SHORT TITLE Prohibit Credit Card Fee Tip Deductions
BILL
NUMBER House Bill 22/ec
ANALYST Graeser
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
Combined CIT
& PIT
Up to
($20.0)
Up to
($20.0)
Up to ($20.0) Up to ($20.0) Up to ($20.0) Recurring General Fund
Parentheses ( ) indicate revenue decreases.
Sources of Information
LFC Files
Agency Analysis Received From
Tourism Department (TD) Agency Analysis was Solicited but Not Received From
Taxation and Revenue Department (TRD) Economic Development Department (EDD) Department of Finance & Administration (DFA)
SUMMARY
Synopsis of House Bill 22
House Bill 22 prohibits employers of tipped employees from deducting credit card processing
fees from the amount of the tips paid to the tipped employee.
This bill contains an emergency clause and would become effective immediately on signature by
the governor.
FISCAL IMPLICATIONS
The provisions of this HB22 would have minimal impact on the general fund.
The federal Fair Labor Standards Act (FLSA) allows employers to deduct credit card processing
fees from employee tips, but only for the tip portion, not the entire restaurant bill. The provisions
of this bill would prohibit even that limited deduction.
The Taxation and Revenue Department reports $3.2 billion in gross receipts from full-service
restaurants and bars between October 1, 2023, and September 31, 2024. The fiscal impact of this House Bill 22/ec – Page 2
bill assumes 14 percent of this $3.2 billion is from credit card tips.
If 20 percent of tips are reduced for processing fees and the average credit card processing fee is
3.5 percent, then restaurant profits would decrease by about $3 million annually and tipped
worker’s income would increase by the same amount. Many restaurants are organized as LLC
pass-through entities. Marginal tax rates, either personal income tax (PIT) or corporate income
tax (CIT) average about 5.4 percent, while average server’s income tax marginal rate averages
about 4.7 percent. The net impact of this proposal will be no more than an annual $20 thousand
decrease to general fund revenues.
This change is approximately a shift of $17 a week for servers whose employers are currently
deducting credit card fees from employee tips.
SIGNIFICANT ISSUES
California, Maine, and Massachusetts prohibit processing fee deductions from tips.
Inflation since 2020 has caused most restaurant costs to rise far faster than their prices or net
income. Many restaurants use cost-reducing strategies such as cutting hours rather than laying
off servers and kitchen staff. Deducting credit card fees from employee tips is a small added
strategy used by some employers to help control costs.
LG/hj/SL2