Off the Tax Roll: Tips, Overtime, and Income Taxes

A new report released by Forward Analytics finds that a “No-Tax-On-Tips” proposal, paired with the pre-existing federal policy, would reduce state income taxes for Wisconsin workers who earn tips and overtime by a combined $2.7B over the next decade, with an equal cost to total state revenue collections. The report additionally examines how the proposal would interact with other tax credits (including SNAP), and how it could lead to wage reclassifications.

The analysis follows the occupation definitions in the federal law and covers both tipped and overtime income. In April 2026, a “No Tax on Tips” proposal (Senate Bill 36) passed both chambers, but Gov. Tony Evers vetoed it. The following month, a permanent policy that included deductions for tipped and overtime income was included in the budget compromise bill (LRB-6707). However, the legislation failed to garner enough support in the legislature.

The report shows that a worker’s state income tax liability would depend entirely on job classification and income composition (wages versus tips or overtime), rather than total earnings or ability to pay. For example, a waiter and an administrative assistant who make $40,000 annually, with the waiter splitting their income through $25,000 in wages versus $15,000 in tips, would have significantly different tax liability. Under the proposed rules, the two would have a $716 difference in tax liability. The tax benefit also varies across income levels, with the analysis finding the largest average benefit among workers earning between $85,000 and $132,000. These differences underscore how job classification and income distribution can affect the proposal’s impact in potentially unintended ways.

The proposal could also impact spending and employment patterns. A lower state income tax bill means more take-home pay, which could support consumer spending. At the same time, employees and employers are incentivized to pay more in tips or overtime, and a state policy could amplify the federal law’s effect.

“A ‘no tax on tips’ policy would put more money back in the pockets of many Wisconsin workers, and it would also carry a real cost to the state,” said Jacob Anderson, research analyst at Forward Analytics. “Lawmakers should weigh both sides and clearly outline who stands to benefit. There may be unintended consequences if the policy is not thoughtfully considered before enacted.”

The Forward Analytics report makes clear that if political and public support for a “no-tax-on-tips” policy continues, future political debates need an analytical foundation that clearly explains who benefits, what the short- and long-term costs are, and the broader consequences for Wisconsin’s tax structure and economy.

See the full Forward Analytics report, Off the Tax Roll: Tips, Overtime, and Income Taxes.