Illinois Representatives Ryan Spain and Tony M. McCombie and Senator Senate Craig Wilcox have introduced a bill to create a new income tax deduction for gratuities. House Bill 1383 and Senate Bill 0140, introduced in the 104th General Assembly, aim to amend the Illinois Income Tax Act to allow taxpayers to deduct gratuity income from their state taxes.

Under HB 1383:

• The bill would create an income tax deduction for gratuities that are included in a taxpayer’s federal adjusted gross income.
• If passed, the deduction would take effect for tax years beginning on or after January 1, 2026.
• The bill defines “gratuities” as having the same meaning given in Section 3 of the Illinois Minimum Wage Law.
• The proposed deduction would be exempt from certain limitations that apply to other tax deductions in Illinois.

Under 0140:

• Tipped workers would be eligible for a new state income tax deduction
• The deduction would apply to gratuities included in their federal adjusted gross income
• The deduction amount would equal 100% of tips earned
• Workers would still need to report their tip income on tax returns
• However, the reported tips would not be subject to Illinois’ 4.95% income tax

Supporters argue the deduction would help lower the tax burden on service industry workers, many of whom rely heavily on tips.