HOUSE OF REPRESENTATIVES

153rd GENERAL ASSEMBLY

HOUSE SUBSTITUTE NO. 1

FOR

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:

§ 1106(b)(13). Tipped Worker Relief Act of 2026.

a. Tipped Worker Income Subtraction. For taxable years beginning after December 31, 2026, and before January 1, 2030, a resident or non-resident individual of this State may subtract from Delaware taxable income up to fifteen thousand dollars ($15,000) of qualified tips received during the taxable year.

b. “Qualified tips” means the same as defined at 26 U.S. Code 224(d) as of the effective date of this Act.

c. “Eligible recipient” means a Delaware taxpayer who qualifies under federal law for a subtraction from federal personal income tax for income received as a qualified tip as of the effective date of this Act.

d. The subtraction allowed under this section phases out based on Delaware filing status and the amount of federal adjusted income as follows:

Amount of Deduction     Taxpayer Filing Status     Federal Adjusted Income  

$15,000 or the amount of qualified tip Single         $1 to 74,999

income whichever is less     Joint         $1 to 149,999  

$10,000 or the amount of qualified tip Single         $75,000 to $87,499   income whichever is less       Joint         $150,000 to $174,999

$5,000 or the amount of qualified tip Single         $87,500 to $100,000

income whichever is less     Joint         $175,000 to $200,000  

Section 2. The Department of Finance may promulgate regulations for businesses where employees routinely receive tips within one hundred eighty (180) days of the effective date of this Act.

Section 3. The Division of Revenue must complete a fiscal impact review of this Act no later than December 31, 2028.

Section 4. This Act shall be known and may be cited as the “Tipped Worker Tax Relief Act of 2026”.

Section 5. 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 6. This Act takes effect for tax years beginning after December 31, 2026.

Section 7. This Act shall expire for tax years beginning on or after January 1, 2030.

SYNOPSIS

This Act establishes the Tipped Worker Tax Relief Act to provide targeted state income tax relief to tipped workers in Delaware. It creates a subtraction from income of up to $15,000 of qualified tips. The program sunsets the end of 2029 unless renewed. This legislation promotes fairness, supports workforce retention in the small business community, and addresses affordability challenges without new taxes or mandates on employers.