A new Forward Analytics report estimates that exempting tips and overtime from Wisconsin’s income tax would reduce state collections by $2.7 billion between 2028 and 2037. That is the same $2.7 billion that would stay with the workers who earn it.
The Milwaukee Journal Sentinel highlighted the $2.7 billion figure with the headline, “Cost of ending Wisconsin tax on tips, OT pegged at $2.7B over decade.” This headline focuses on the loss for the government, not the benefit for taxpayers. Forward Analytics, which is part of the Wisconsin Counties Association, described the amount as both a drop in state revenue and an equal gain for taxpayers.
[L]ess money collected by the state means more money stays with the people who earned it. Servers, bartenders, factory workers, and others who earn tips and overtime would keep $2.7 billion instead of sending it to Madison.
For example, the report shows that a waiter making $40,000 a year, with $15,000 from tips, would pay about $716 less in state income tax. An office worker earning the same amount without tips would not see any change. Workers start to benefit at around $14,000 in income, and the biggest average savings go to those earning between $84,000 and $100,000.
Wisconsin still taxes tips and overtime, even though federal law allows a deduction for both until 2028. Governor Tony Evers vetoed earlier Republican bills that would have eliminated the state tax on tips and limited the tax on overtime, saying they were not broad enough and would treat workers differently depending on how they earn their pay. Republicans later added similar measures to a surplus package that passed the Assembly but failed to pass in the Senate.
The Journal Sentinel’s use of the word “cost” is similar to how earlier income tax cut proposals were covered. In both situations, less money collected by the state means more money stays with the people who earned it. Servers, bartenders, factory workers, and others who earn tips and overtime would keep $2.7 billion instead of sending it to Madison.
Republican Tom Tiffany has called for eliminating the state tax on tips and overtime as part of a broader package that also returns the surplus and cuts the middle-class income tax rate. The Forward Analytics number quantifies what that piece of the package would leave with workers.
The report points out that only some jobs qualify for the tips deduction and that the overtime exemption has income limits under the federal rules. Still, the main point remains the same as the Journal Sentinel’s headline: this policy would put $2.7 billion back into the paychecks of Wisconsin workers over ten years.
