Ohio Proposal Aims To Eliminate State Taxes on Tips

An Ohio lawmaker has proposed a bill to exempt tips from state income tax, sparking debate on its potential impact on service workers and the state’s economy.

At a Glance

Ohio Rep. Jay Edwards introduced House Bill 643 to exempt tips from state income tax
The bill aims to benefit over half a million Ohioans, particularly blue-collar workers
Critics argue the proposal may not significantly help low-income service workers
The bill is inspired by a similar idea from Donald Trump, which is also supported by Kamala Harris
Concerns raised about potential impacts on state revenue and workers’ compensation funds

New Tax Cut Proposal Aims to Help Service Workers

Ohio Representative Jay Edwards (R-Nelsonville) introduced a bill at the Ohio Statehouse last month that could impact the state’s service industry. House Bill 643, a new tax cut proposal, aims to exempt tips and gratuities from state income tax, potentially benefiting over half a million Ohioans, particularly those in blue-collar jobs.

The bill, which is still in its early stages, currently contains only one sentence: “The General Assembly declares its intent to exempt tips and gratuities from income tax.” Rep. Edwards plans to add more detailed legislative language after the summer recess in November.

Bipartisan Support and Industry Backing

The proposal has garnered bipartisan support and backing from the Ohio Restaurant and Hospitality Alliance. John Barker, president of the alliance, expressed enthusiasm for the bill, stating, “We’re pretty excited about anything that we can do to help people in this industry move forward.”

“These aren’t people getting rich. These aren’t millionaires. These are blue collar people that are trying to get by,” said Rep. Jay Edwards, emphasizing the bill’s focus on helping working-class citizens.

The idea behind this bill is not entirely new. It comes in the midst of similar ideas put forth by former President Donald Trump and Vice President Kamala Harris, highlighting a rare point of agreement between the two major political parties on tax policy.

Potential Impact and Concerns

Proponents of the bill argue that it would provide financial relief to tipped workers, allowing them to keep more of their earnings. Bark indicated the average tipped worker in Ohio makes $27 an hour, including tips. With the current tax system, only people making over $26,050 in the state are on the hook for income taxes, meaning this proposal would primarily impact average earners in the service industry.

However, critics from both conservative and liberal think tanks have raised concerns about the proposal’s effectiveness. Many low-income workers, such as waiters and waitresses, already have minimal tax liabilities due to existing credits like the state Earned Income Tax Credit.

One commentary from the Ohio Capital Journal, for instance, argued that while this type of policy would probably help high-end tip earners, it would likely have less impact for “low-wage servers.” It suggested that raising the minimum wage or broadening the income tax credit would be more useful.

Potential Consequences and Alternatives

Some experts warn of potential unintended consequences. Alex Muresianu, a policy analyst at the Tax Foundation, cautioned back in July, “One could imagine a scenario in which, say, highly compensated lawyers or accountants begin to receive some of their income as voluntary tips.” He argued that a no-tips-on-taxes policy could lead to more industries adopting a tipping model, making it difficult to estimate the cost of the proposal.

“That would mean more service industries adopting the restaurant industry approach of a list price up front and an expected voluntary tip at the end of the transaction,” Muresianu explained. “This kind of behavioral response makes it difficult to estimate the cost of the no-tax-on-tips proposal.”

As the debate continues, some suggest that the proposal could be more effective if designed as a refundable credit. Lawmakers will need to carefully consider these factors as they refine the bill in the coming months, balancing the desire to support service workers with the need to maintain state revenues and prevent potential abuses of the system.