The Michigan House of Representatives has approved a state budget plan for 2026 that includes a measure to eliminate state taxes on tips. The provision, part of the House GOP budget, exempts the first $25,000 in tip income from state income taxes, mirroring a similar federal exemption recently enacted by Congress.
State Rep. Joe Aragona, R-Clinton Township, led the effort to include this measure. Aragona previously introduced legislation to remove taxes on tips last year without success and reintroduced it as House Bill 4051 in January after Republicans gained control of the chamber.
“Lawmakers worked together to save the tipped-wage system, which guarantees tipped workers earn at least the minimum wage while also giving them the potential to earn much more if they hustle and treat customers well,” Aragona said. “Getting rid of taxes on tips at the state level will do even more to help those who rely on tips for their income.”
All 58 House Republicans supported eliminating state taxes on tips; only one Democrat joined them. Aragona expressed hope that Democrats would reconsider their opposition and support the measure as part of a final budget agreement.
“It was always an open secret that most waiters and waitresses didn’t claim their full tips back when people were paid cash and there wasn’t a paper trail, so the move to credit cards is another area where restaurant workers are getting squeezed. Getting rid of taxes on tips is something we can do to help,” Aragona said.
The proposal follows recent changes at both state and federal levels regarding tipped wages and tax policy. Republican lawmakers have argued that preserving the tipped-wage system helps keep menu prices stable and protects restaurant jobs. After gaining majority control in Lansing, Republicans worked with some Democrats to pass compromise legislation increasing base wages but maintaining tip credits—a deal signed into law earlier this term.
Aragona acknowledged drawing inspiration for his bill from former President Trump’s campaign platform, which included removing taxes on tips; Vice President Kamala Harris later adopted a similar stance during her campaign.
“Restaurants are still struggling from covid shutdowns, and inflation is making food more expensive, which is why we had to save the tipped-wage system. We want families to be able to afford to go out to eat,” Aragona said. “Getting rid of taxes on tips is another way of helping make sure those who rely on tips also come out ahead in the deal, and that should hopefully get bipartisan support.”
