House Bill No. by Representative Knox proposes to enact a new income tax deduction for tip income earned by resident individual taxpayers, specifically targeting those with adjusted gross incomes (AGI) at or below certain thresholds. The bill defines "tip income" to include amounts reported as "social security tips," "allocated tips," and cash and charge tips received, minus those reported to employers. The deduction is structured to provide varying percentages based on the taxpayer's AGI, with full deductions available for those earning $61,000 or less (or $122,000 for married joint filers), and gradually decreasing for higher income brackets, ultimately phasing out for individuals earning above $65,000 and married joint filers above $130,000.

The provisions of this bill will take effect on January 1, 2026, and will remain in effect until any amendments to the Internal Revenue Code that eliminate federal income tax on tip income are enacted. The bill aims to provide financial relief to lower-income earners in the service industry by allowing them to deduct a portion of their tip income from their taxable income, thereby potentially reducing their overall tax burden.