Proposal Provides Tax Benefits for Workers Who Rely on Tip Income

May 2, 2026

Delaware State House - Republican Caucus

Amid the ongoing debate over whether credit card processing fees should be banned on tips made to service workers, a new bill filed this week proposes tax breaks on tipped income.

Sponsored by State Rep. Jeff Hilovsky (R-Long Neck, Oak Orchard), in photo, House Bill 386, also known as the Tipped Worker Tax Relief Act of 2026, seeks to provide targeted state income tax relief. 

The measure would create a tax deduction of up to $15,000 on tipped income for workers earning between $40,000 and $75,000 annually. The deduction would be phased out for service workers earning between $75,000 and $100,000.

Tipped workers earning under $40,000 a year would receive a refundable tax credit of up to $15,000. As a refundable credit, individuals would receive a refund for the balance remaining after their tax obligations were paid.

The proposal breaks new ground on the taxation of tipped income. The federal One Big Beautiful Bill Act, signed into law last July, included a “no-tax-on-tips” provision, allowing workers to deduct up to $25,000 in qualified tip income from their federal taxable income through 2028. About 10 states have enacted laws mirroring the federal deduction for their income taxes, but none have reportedly offered a tax credit.

The Delaware Tipped Worker Tax Relief Act of 2026 would expire in 2029 unless the legislature renewed it.

House Republicans co-sponsoring the bill include State Reps. Tim Dukes (Laurel), Danny Short (Seaford), Bryan Shupe (Milford South, Ellendale), and Lyndon Yearick (Camden, Woodside). The measure is pending action in the House Revenue & Finance Committee. 

The introduction of the bill comes as the future of House Bill 315 is in doubt. That legislation, which is currently eligible for consideration in the House, would prohibit credit card companies from charging processing fees on tips. 

Restaurant owners support the bill, noting that they currently pay processing fees on tips, which is money they do not receive as revenue. Under Delaware law, restaurants cannot deduct transaction fees from their workers' tips.

The banking and credit card industries oppose the measure, saying not only would it require them to provide a service for free, but also that implementing it would require systemic changes to credit transaction networks and could disrupt patrons' ability to tip with credit cards.

Illinois is the only state to have enacted such a law, and a legal challenge to the statute's constitutionality is pending before a federal appeals court.