There is no tax on tips exemption in Hawaii. Tip income is fully taxable on your state return, and it is fully taxable at the federal level too. A 2024 state law that circulates online as a tip tax break did something else entirely, a 2026 Hawaii bill that would have exempted tips died in the legislature, and the federal No Tax on Tips Act has not become law. If you earn tips in Hawaii, report them and pay tax on them.
Act 46 Is Not a Tip Exemption
Governor Josh Green signed Act 46 (originally HB 2404) on June 3, 2024. The law is often described online as a tip tax break. It is not. Act 46 raised the standard deduction and widened the income tax brackets for every Hawaii filer, tipped or not.1Department of Taxation. Department of Taxation Announcement No. 2024-03
The deduction changes are real money. For the 2026 tax year, a single filer or a married person filing separately gets an $8,000 standard deduction, up from $4,400 in 2025. Married couples filing jointly go from $8,800 to $16,000, and head-of-household filers move from $6,424 to $12,000.2Department of Taxation. Frequently Asked Questions (FAQs) The bracket changes that started in 2025 also help: for a single filer, the lowest 1.4% rate now covers the first $9,600 of taxable income (previously $2,400), and the top 11% rate does not begin until income exceeds $325,000 (previously $200,000).1Department of Taxation. Department of Taxation Announcement No. 2024-03
None of this singles out tips. A server benefits the same way a salaried office worker does. There is no line on your return for subtracting gratuities.
The Hawaii Tip Exemption Bill That Died
The Legislature did consider a genuine tip exemption. Senate Bill 1153 in 2026 would have excluded tip income from gross income, adjusted gross income, and taxable income for state purposes, for employees receiving more than $30 per month in gratuities. It was set to take effect for tax years beginning after December 31, 2025.
SB 1153 died in the legislature as of May 2026 and never became law. Hawaii Revised Statutes Section 235-7, which lists income exclusions available to state taxpayers, still contains no provision for tips. Form N-11 has no line for subtracting tip income and no adjustment for claiming a tip exemption. Every dollar of tip income you earn in Hawaii is subject to state income tax at the ordinary rates.
Where the Federal No Tax on Tips Act Stands
At the federal level, the No Tax on Tips Act (S. 129) passed the U.S. Senate by unanimous consent on May 20, 2025.3United States Congress. S.129 – No Tax on Tips Act – 119th Congress (2025-2026) It is being held at the desk in the House and has not received a floor vote. It has not been signed into law.
Even if the federal bill eventually passes, it will not automatically apply to your Hawaii return. Hawaii does not automatically adopt federal income tax changes; the Legislature would have to pass a separate conforming bill. Given that SB 1153 already failed, conformity is not a given. Some states have said they will not conform to the federal tip exemption if it becomes law; others plan to adopt it. Hawaii’s position is undecided.
How Your Tips Are Taxed Right Now
With no exemption in place at either level, tips are ordinary taxable income. Hawaii’s rates range from 1.4% on the lowest slice of taxable income to 11% on income above $325,000 for a single filer.1Department of Taxation. Department of Taxation Announcement No. 2024-03 The IRS treats all tips as gross income subject to federal income tax, Social Security tax, and Medicare tax.4Internal Revenue Service. Publication 531 – Reporting Tip Income
One distinction matters even without a tip exemption: a voluntary tip is not the same as a mandatory service charge. The IRS looks at four factors. A payment counts as a tip only when the customer gives it freely, decides the amount without restriction, faces no employer-dictated policy on the payment, and chooses who receives it.5Internal Revenue Service. Interim Guidance on Rev. Rul. 2012-18 Announcement 2012-25 Automatic gratuities on large parties, banquet service charges, and similar mandatory add-ons are wages, not tips. If any tip exemption ever does pass, service charges would not qualify.
Reporting Tips to Your Employer
Federal law requires you to report tips to your employer in any month you receive $20 or more. The written report is due by the tenth of the following month. Tips under $20 in a month do not need to be reported to your employer, but you still owe tax and must include them on your annual return.6Internal Revenue Service. Topic No. 761, Tips – Withholding and Reporting
Keep a daily record of every tip, cash or charged. The IRS recommends Form 4070A or any log capturing your name, your employer’s name, and the date and amount of each tip. If you fail to report tips to your employer, the IRS can impose a penalty equal to 50% of the Social Security and Medicare taxes owed on the unreported amount.4Internal Revenue Service. Publication 531 – Reporting Tip Income
Filing Your Hawaii Return
Hawaii residents report income on Form N-11. For the 2025 tax year, the deadline is April 20, 2026. Report your full income, including tips, just as you would on federal Form 1040. You can e-file through Hawaii Tax Online at hitax.hawaii.gov or through approved software, or mail a paper return.7Department of Taxation. State of Hawaii Department of Taxation 2025 N-11 Hawaii Resident Income Tax Instructions Refunds typically take seven to eight weeks for e-filed returns and nine to ten weeks for paper.8Department of Taxation. E-Services Information
Why Reporting Tips Still Pays Off
Underreporting tips creates a problem that outlasts any tax year. Social Security benefits are calculated on your average indexed monthly earnings across your highest 35 years of work.9Social Security Administration. Social Security Benefit Amounts Every dollar of reported tip income goes into that earnings record. Every unreported dollar stays out of it, and the effect on your retirement benefit is permanent.
A tipped worker who leaves a few thousand dollars a year off the books over a 20-year career can end up with noticeably smaller monthly Social Security checks. The IRS penalty for unreported tips arrives quickly. The Social Security shortfall arrives quietly, and it is often the larger loss.
The Practical Answer for 2026
Until the Hawaii Legislature enacts a tip exemption or the state conforms to a federal one, your tips are taxable. Act 46 does not change that. SB 1153 did not become law. The federal bill is stalled in the House. What you have working in your favor for 2026 is a standard deduction that roughly doubled and wider brackets that keep more of your income in lower-rate tiers. Keep a daily tip log, report tips to your employer on time, and file Form N-11 with your full income by April 20, 2026.