A bill for an act exempting cash tips from the individual income tax, and including applicability provisions.(See HF 1030.)

House File 268 (HF268) is a bill introduced in the Iowa General Assembly that aims to exempt cash tips from being subject to individual income tax. Specifically, it proposes that cash tips reported to employers, as required by federal law, would not be included in taxable income for state tax purposes. This exemption would apply to tax years beginning on or after January 1, 2026. The bill was introduced on February 6, 2025, and was later renumbered as HF1030 on April 17, 2025.

Supporters of HF268 argue that exempting cash tips from state income tax would provide financial relief to service industry workers who rely heavily on tips as a significant portion of their income. They contend that this measure would acknowledge the unique nature of tipped income and could potentially boost the local economy by increasing disposable income for these workers.

Critics of HF268 express concerns that exempting cash tips from state income tax could lead to decreased state revenue, potentially impacting funding for public services. They also worry that this exemption might create disparities between workers who receive cash tips and those who do not, leading to fairness issues in the tax system.