Montana’s Tax Changes for Tip Income
Helena – Since last year, there’s been a lot of talk in Montana about reporting tips for state income tax. With Congress considering a federal bill that would implement a “no tax on tips” policy, there’s a chance things could revert to how they were before 2024.
This week, two distinct proposals have surfaced in Congress. They aim to fulfill President Donald Trump’s commitment to exempt tip income from taxation. As it stands now, this would only apply to workers earning less than $160,000 annually, allowing for tip deductions of up to $25,000.
In 2021, Montana’s Legislature passed Senate Bill 399, which was intended to simplify the state’s tax framework. This bill linked Montana’s taxable income directly to the federal taxable income, which removed state policies that previously exempted tips from being taxed. Therefore, any changes Congress makes would also automatically impact Montana.
Sen. Greg Hertz of R-Polson, who backed SB 399, noted, “It’s up to you to decide whether the federal government will tax Montana or not.”
According to the Montana Department of Revenue, 26,623 tax filers reported tip income in 2023, adding up to around $145 million. The department estimated that had this income been taxed, it might have generated about $6.5 million in revenue for the state.
Interestingly, Hertz mentioned he hasn’t received much feedback since Montana enacted this tip policy change. “I think it’s because a lot of people who receive tips get them in cash, and many don’t even report this income,” he remarked. “So, it doesn’t seem to be having a big impact.”
Meanwhile, the U.S. Senate has advanced the “no tax on tips” initiative as a standalone proposal. However, House Republicans are considering it within a larger package that not only addresses tip exemptions but also overtime wages. Hertz believes this is a significant issue that deserves more attention.
“I think it’s much bigger,” he noted. “There are likely many more employees affected by overtime than by tips.”
While it seems there are strong indications that the “no tax on tips” proposal could move forward, it’s worth remembering that the journey to becoming law is still long and may involve various changes along the way.
