Wisconsin Eyes Tax Exemptions on Tips and Overtime
A new report estimates that exempting tips and overtime from state income tax would cost Wisconsin $2.7 billion over a decade.
Updated on Oct. 15, 2026 in Taxes
Live Poll
Should states exempt tips and overtime pay from income taxes to help workers?
Forward Analytics projects that Wisconsin would lose $2.7 billion in income tax revenue between 2028 and 2037 if tips and overtime pay become tax-exempt. The policy shift would prioritize tax relief for specific workers, while providing no benefit to those earning wages without tips or overtime.
Why it matters
The proposal aims to reduce the tax burden on specific service and hourly workers, yet the long-term impact on state revenue poses a significant fiscal challenge. Critics point out that the relief would not reach the lowest-income earners who already pay little or no state income tax.
A waiter earning $40,000 with $15,000 in tips would save $716 in state taxes, while an office worker with no tips or overtime would receive no benefit. The state faces a total projected revenue loss of $2.7 billion between 2028 and 2037.
The players
Forward Analytics
Forward Analytics is a research organization based in Madison that provides data-driven policy analysis for Wisconsin.
The details
The analysis indicates that taxpayers whose compensation relies heavily on tips or overtime would be the primary beneficiaries of this tax policy. However, the report highlights that many low-income workers would see little to no financial change because their current state tax liability is already near zero.
Timeline
2028-2037 is the projected timeframe for the $2.7 billion in lost state income tax revenue.
Market Dynamics
This proposal alters the existing Wisconsin state income tax structure by carving out specific exemptions for hourly and tipped compensation. The policy marks a significant departure from the current uniform application of the Wisconsin state income tax structure.
Residents working in service or hourly roles may see a decrease in state tax obligations if this policy is enacted. Conversely, the reduction in state revenue could influence future debates regarding public service funding or adjustments to other tax brackets.
The takeaway
While the exemption promises direct savings for some service-industry employees, it does not guarantee relief for lower-wage earners who are already outside the tax net. Taxpayers should consider how potential changes to state revenue could influence broader local economic conditions in the coming decade.
Further reading
Learn more about local fiscal policy on the Wisconsin Taxes section.
Live Poll
Should states exempt tips and overtime pay from income taxes to help workers?
