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Senate panel hears bill to exempt up to $25,000 in tipped income from Kansas income tax starting 2026
Summary
A Senate Assessment and Taxation Committee hearing examined Senate Bill 277, which would create a state subtraction for certain tipped income beginning with tax year 2026. Committee staff and the Department of Revenue outlined bill mechanics and a fiscal estimate; a policy expert warned the change could create complexity and inequity.
A Kansas Senate committee heard testimony on Senate Bill 277 on an exemption that would remove certain qualified tips from state individual income tax beginning in tax year 2026.
Amelia, a committee staff presenter, told the Senate Assessment and Taxation Committee the bill would amend 79-32-1-17 (as cited in the bill text) to provide "a subtraction modification in the amount equal to the qualified tips received during the taxable year that are included on statements furnished to the employer pursuant to Internal Revenue Code section 6053(a) and that are included in the federal adjusted gross income of the taxpayer." She said the subtraction would be capped at $25,000 per individual per year and that the secretary of revenue would publish a list of occupations that are considered to "traditionally and customarily" receive tips on or before Dec. 31, 2024.
The bill defines "qualified tip" to include cash tips, tips from other employees under tip-sharing arrangements, and charge tips (credit/debit card tips an employer distributes to employees). It excludes tips for an individual who was a "highly compensated employee" under Internal Revenue Code section 414(q)(4) for the preceding taxable year; Amelia said that threshold was adjusted annually and was $160,000 for tax year 2025.
Department of Revenue (KDOR) staff member Eddie provided the committee estimate for the bill's fiscal impact: "$4,000,000 in fiscal year 2026 and $13,200,000 in the years thereafter." Committee members asked whether the KDOR estimate reflected the $25,000 per-person cap; staff replied the estimate appeared to be for the bill as written and that the cap might be high enough not to materially lower the projected impact.
Nathan Kessler, an opponent who testified during the hearing, argued against exempting tips from income tax. "Exempting tips from income is generally regarded as impractical tax policy because of the complexity and inequity that it would introduce into the tax code with little to no benefit for the targeted workers," Kessler said, citing analyses he attributed to multiple tax policy organizations. He also said many tipped occupations have median annual incomes under $30,000 and that some workers already have little or no state tax liability after deductions and credits.
Several senators pressed staff on interactions with any potential federal change and on how the exemption would be administered. Amelia told the committee the bill does not address every possible interaction with federal law; for example, if the federal government later exempts tipped income, "there would be some time for the legislature to possibly follow-up" to reconcile state conformity. Senators also asked how the secretary of revenue's occupational list and the requirement that tips be reported on federal statements under IRC 6053(a) would work in practice.
The chair closed the hearing on SB 277 and said the committee may reopen it at a later date to allow additional testimony.
The hearing record shows discussion and estimates but no committee vote on SB 277.
