No Tax on Tips in Idaho

Why the deduction reaches your Idaho return

The four OBBBA deductions are below the line: they reduce federal taxable income, and they leave federal adjusted gross income untouched. That is why most states never see them. Idaho is an exception because its own calculation begins from federal taxable income rather than from AGI, and because it follows the Internal Revenue Code on a static basis rather than freezing to a fixed date.

Those two facts together mean no Idaho legislation was needed. The figure Idaho starts from already has Schedule 1-A subtracted from it, so the deduction arrived automatically the moment the federal provision took effect.

Idaho then applies a flat 5.3% on wage income. On the $14,000 in the example above, that is worth roughly $742 of state tax — a 5.3% effective rate on that slice of income.

What $14,000 of tips is actually worth in Idaho

Take a single filer with $32,000 of other wages and $14,000 of tips — the defaults loaded in the calculator above. Federal taxable income falls by the full $14,000, worth $1,680 at this filer's bracket.

Idaho taxable income falls by the same $14,000, worth a further $742. Total saving: $2,422. The $1,071 of Social Security and Medicare on the same dollars is untouched, because these are income tax deductions and payroll tax is a separate system.

Move the sliders to your own numbers and the arithmetic follows. The two things that will not change are Idaho's treatment — the deduction flows through and the payroll tax, which applies to the first dollar and the last.

What tips tax relief does not do, in Idaho or anywhere

Your tips are still wages. They stay in boxes 1, 3 and 5 of your W-2 — the box 12 code TP is informational — so Social Security and Medicare are computed on exactly the same amount as before, and your employer's withholding does not change because of this deduction.

Only tips in one of the 81 occupations Treasury has published qualify, and only genuinely voluntary tips: an automatic gratuity on a large party is a service charge, which is a wage rather than a tip and is not deductible. The deduction is capped at $25,000 per return and phases out above $150,000 of MAGI ($300,000 filing jointly).

And all four OBBBA deductions expire after tax year 2028. Whatever Idaho does between now and then, the federal provision has a fixed end date.

Frequently asked questions