A bill for an act exempting cash tips from the individual income tax, and including applicability provisions.

Iowa House Bill 361, introduced on February 12, 2025, proposes to exempt cash tips from being subject to individual income tax in Iowa. This means that individuals who receive cash tips as part of their income would not have to pay state income tax on those amounts. The bill is currently under consideration by the House Ways and Means Committee.

Supporters of the bill argue that exempting cash tips from state income tax would provide financial relief to workers in service industries, such as restaurant staff and hairdressers, who often rely on tips as a significant portion of their income. They believe this measure would help improve the financial well-being of these workers and stimulate economic activity by increasing their disposable income.

Critics of the bill express concern that exempting cash tips from income tax could lead to decreased state revenue, potentially affecting funding for public services. They also worry that this exemption might create disparities between workers who receive cash tips and those who receive tips through electronic means, as the latter would still be subject to income tax.