The 2026 state budget plan approved by the Michigan House of Representatives on Tuesday includes a provision to get rid of state taxes on tips.

The provision was championed by state Rep. Joe Aragona, R-Clinton Township. Aragona introduced legislation to get rid of taxes on tips last year, but his bill never got a vote when Democrats controlled the House. He re-introduced the legislation in January of this year, this time as House Bill 4051.

“Lawmakers worked together to save the tipped-wage system, which guarantees tipped workers earn at least the minimum wage while also giving them the potential to earn much more if they hustle and treat customers well,” Aragona said. “Getting rid of taxes on tips at the state level will do even more to help those who rely on tips for their income.”

All 58 House Republicans voted to get rid of state taxes on tips, but only one Democrat joined in support. Aragona said that he hopes Democrat lawmakers, who typically oppose tax cuts, will see the issue as helping make life more affordable and support the “no tax on tips” plan as part of a final budget deal even though they voted against it on Tuesday.

“It was always an open secret that most waiters and waitresses didn’t claim their full tips back when people were paid cash and there wasn’t a paper trail, so the move to credit cards is another area where restaurant workers are getting squeezed. Getting rid of taxes on tips is something we can do to help,” Aragona said.

The “no tax on tips” provision in the Michigan House GOP budget plan exempts the first $25,000 in income from tips from state income taxes. That mirrors the federal exemption in the One Big Beautiful Bill that was recently passed by Congress and signed into law.

Democrat Vice President Harris endorsed Trump’s “no tax on tips” plan

Aragona freely admits that he cribbed the idea of getting rid of taxes on tips from President Trump, after then-candidate Trump made it a part of his 2024 campaign platform. Democrat Vice President Kamala Harris quickly glommed onto Trump’s idea and made it part of her platform as well.

Re-cap: lawmakers compromised to save the tipped wage system

If you were paying attention to what was happening at the Capitol in Lansing in December, then you might remember that House Republicans walked out of session after Democrats (who controlled the chamber last term) refused to negotiate over road funding or saving the tipped wage system.

Republican lawmakers were concerned that if the tipped-wage system went away, then menu prices would go up, people would go out to eat less, restaurants would close, and thousands of people would lose their jobs.

The first thing House Republicans worked on after gaining majority was legislation to save restaurant tipping. The compromise plan, which increased base wages some but still kept the tip-credit, got bipartisan support in the House and Senate, and was signed into law by the governor.

That willingness to work together to find a compromise resulted in the first major pieces of legislation signed into law this term. Aragona said he appreciates that several Democrat lawmakers crossed over to vote with Republicans to make a deal happen. Aragona also said he hopes Democrats will support his plan to get rid of taxes on tips as part of a final budget deal, even though most all of them voted against it on Tuesday.

“Restaurants are still struggling from covid shutdowns, and inflation is making food more expensive, which is why we had to save the tipped-wage system. We want families to be able to afford to go out to eat,” Aragona said. “Getting rid of taxes on tips is another way of helping make sure those who rely on tips also come out ahead in the deal, and that should hopefully get bipartisan support.”