The Wisconsin State Assembly has passed bills that would eliminate state income taxes on tips and allow a deduction for a portion of overtime pay. The tip exemption would apply for tax years 2025–2028, and the overtime deduction would be capped at $12,500 for single filers and $25,000 for joint filers. While the measures still need to clear the Wisconsin State Senate, the proposals track (and build on) the broader policy trend represented by recent federal action on the same subject.
Business Takeaway: Even though these are tax changes (i.e., not wage-and-hour changes), employers might prepare for employee questions about what qualifies as a tip or overtime for reporting and withholding purposes. While the rules haven’t changed in this regard, employees may feel new or renewed interest in establishing more clarity around things like bonuses, premiums, etc., as well as how such payments interact with regular rate (and overtime rate) calculations. Now is a good time to review your payroll and record-keeping protocols and systems, particularly for tipped and non-exempt employees. Contact us if you have questions regarding tipping, overtime, or the tax implications of either.