AN ACT TO AMEND TITLE 30 OF THE DELAWARE CODE RELATING TO PERSONAL INCOME TAX DEDUCTION OR CREDITS APPLICABLE TO QUALIFIED TIP INCOME.

Legislation Document

SPONSOR:

Rep. Hilovsky & Sen. Richardson & Sen. Buckson

Reps. Dukes, D. Short, Shupe, Yearick; Sens. Hocker, Pettyjohn

HOUSE OF REPRESENTATIVES

153rd GENERAL ASSEMBLY

HOUSE BILL NO. 386

AN ACT TO AMEND TITLE 30 OF THE DELAWARE CODE RELATING TO PERSONAL INCOME TAX DEDUCTION OR CREDITS APPLICABLE TO QUALIFIED TIP INCOME.

WHEREAS, Delaware's service industry like restaurants, nail salons, hair salons, barber ships, and other service-oriented businesses where tipped income is frequent, many employers rely on a dedicated workforce who face significant affordability challenges due to income volatility and rising living costs;

WHEREAS, tipped workers often earn the majority of their income through gratuities, which are subject to full Delaware personal income tax, reducing take-home pay and contributing to economic pressures in tourism and hospitality-dependent communities;

NOW, THEREFORE:

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend Subchapter II, Chapter 11, Title 30 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 1118. Tipped Worker Relief Act of 2026 for Resident Individuals.

Tipped Worker Tax Deduction. (a) For taxable years beginning after December 31, 2026, and before January 1, 2030, a resident individual of this State may deduct from Delaware taxable income up to fifteen thousand dollars ($15,000) of qualified tips received during the taxable year. (b) “Qualified tips” means cash gratuities. Eligible recipients include: employees whose primary duties involve direct customer service, such as servers and bartenders, restaurant employed delivery staff, barbers and beauticians, nail salon employees, and in other industries where tips are prevalent. The deduction under this section phases out for modified adjusted gross income exceeding seventy-five thousand dollars ($75,000) for single filers or one hundred fifty thousand dollars ($150,000) for joint filers, and is fully phased out at one hundred thousand dollars ($100,000) for single filers or two hundred thousand dollars ($200,000) for joint filers. (c) For taxpayers with federal adjusted gross income under forty thousand dollars ($40,000) for single tax filers or eighty thousand dollars ($80,000) for joint tax filers, the value of the deduction is allowed as a refundable credit against the tax imposed by this chapter.

Section 2. Amend Subchapter III, Chapter 11, Title 30 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 1128. Tipped Worker Relief Act for Nonresident Individuals.

Tipped Worker Tax Deduction. (a) For taxable years beginning after December 31, 2026, and before January 1, 2030, a nonresident individual of this State may deduct from Delaware taxable income up to fifteen thousand dollars ($15,000) of qualified tips received during the taxable year. (b) “Qualified tips” means cash gratuities. Eligible recipients include: employees whose primary duties involve direct customer service, such as servers and bartenders, restaurant employed delivery staff, barbers and beauticians, nail salon employees, and in other industries where tips are prevalent. The deduction under this section phases out for modified adjusted gross income exceeding seventy-five thousand dollars ($75,000) for single filers or one hundred fifty thousand dollars ($150,000) for joint filers, and is fully phased out at one hundred thousand dollars ($100,000) for single filers or two hundred thousand dollars ($200,000) for joint filers.

Section 3. The Departments of Labor and Finance shall jointly promulgate regulations for businesses where employees routinely receive tips within one hundred eighty (180) days of the effective date of this Act.

Section 4. The Division of Revenue must complete a fiscal impact review of this Act no later than December 31, 2028.

Section 5. This Act shall be known and may be cited as the “Tipped Worker Tax Relief Act of 2026”.

Section 6. If any provision of this chapter or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this chapter which can be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.

Section 7. This Act takes effect for tax years beginning after December 31, 2026.

Section 8. This Act shall expire December 31, 2029.

SYNOPSIS

This Act establishes the Tipped Worker Tax Relief Act of 2026 to provide targeted state income tax relief to resident and nonresident tipped workers in Delaware. It creates a deduction of up to $15,000 on qualified tips and converts it to a refundable credit for low-income resident earners. The program sunsets in 2029 unless renewed after review. This legislation promotes fairness, supports workforce retention in small business community, and addresses affordability challenges without new taxes or mandates on employers.