HELENA — Tipped workers in Montana have only had to pay state income taxes on their tips since last year. Now, if Congress approves one of the federal bills pushing for a policy of “No Taxes on Tips,” that change will go right back to the way it was before 2024.
This week, two separate proposals moved forward in Congress that would implement President Donald Trump’s campaign promise to exempt workers’ tips from income tax. In their current form, they would apply only to workers making less than $160,000 a year and allow them to deduct up to $25,000 a year in tips.
(Watch the video for more on tip income in Montana.)
In 2021, the Montana Legislature approved Senate Bill 399, which was intended to simplify the state’s income tax system. As part of that, the bill tied Montana’s taxable income directly to the federal taxable income. That eliminated a state-level policy exempting tips from taxable income – but it also means, if Congress does change the rules for taxing tips, it’s automatically going to apply to Montana as well.
“Whatever the federal government decides to tax or not tax flows right through down to Montana,” said Sen. Greg Hertz, R-Polson, who sponsored SB 399.
According to the Montana Department of Revenue, 26,623 tax filers reported tip income in 2023, the last year before the state began taxing that income. Altogether those people reported about $145 million in tips that year. The department estimated, if that had been taxed, it would have produced about $6.5 million in revenue for the state.
Hertz says he hasn’t heard much reaction since Montana made the policy change on tips.
“I think it's because a lot of people who get tips, they get them in cash, and many of them don't even report it on their income,” he said. “So I don't think it's impacted dramatically a lot of people.”
The U.S. Senate advanced a bill with “No Taxes on Tips” as a standalone policy, while the House Republicans’ “one big bill” not only includes a tax exemption on tips, but also one on overtime pay. Hertz believes that’s a change more people should be paying attention to.
“I believe that's much bigger,” he said. “There's probably many more employees who get paid overtime versus those who get tipped.”
While there are strong signs “No Taxes on Tips” could be moving forward, it’s important to remember there’s a long way to go before it becomes law – and that could mean changes in the details.
