Illinois Rejects Federal 'No Tax On Tips' Rule

Illinois has rejected a new federal "no tax on tips" provision, which means that Illinois tipped workers still will owe state income tax on tips.

The "no tax on tips" provision was federally enacted in July. The new deduction is effective for 2025 through 2028 for occupations listed by the IRS as customarily and regularly receiving tips. The maximum annual deduction is $25,000.

According to the Institute on Taxation and Economic Policy, states that conform to the tip provision will lose revenue. Illinois, Maine and the District of Columbia have already chosen not to conform to the tip exemption.

The Wall Street Journal reported that the IRS has also temporarily delayed implementing a provision of the law that would prevent workers in certain service industries from claiming the deduction. This restriction on certain fields of work won't be enforced this year, and likely 2026, too.

The Institute of Taxation and Economic Policy said that this means an unknown number of workers who were assumed to be ineligible can claim the tax break; which further reduces tax revenue federally and state-wide for states who conform to the tax law.

Illinois' minimum wage is currently $15, while the tipped minimum wage is $9.

As of July 1, Chicago's minimum wage is now $16.60 per hour, and is $12.62 per hour for tipped workers.

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