PHOENIX — The Arizona Senate’s majority leader says he wants to pass President Donald Trump’s “no tax” on tips or overtime at the state level.
The president’s big tax bill – known as the “One Big, Beautiful Bill” -- includes a tax deduction for income from tips and overtime. Starting next year for income earned in 2025, eligible workers will be able to take tax deduction for their tips and overtime on top of the standard deduction.
“We're going to have to pass some of those cuts through our own tax system,” Majority Leader John Kavanagh told ABC15. “And we're not going to be taxing the overtime. We're not going to be taxing the things that the federal government made untaxable, like tips.”
Across the aisle, Senate Minority Leader Priya Sundareshan called the idea “a mirage.”
“We see Republicans at the federal level, you know, hiding behind this mirage of no tax on tips and overtime,” she said. “And state-level Republicans doing the same, putting forward a pretend idea that is actually not going to result in benefits to the working-class families who need it.”
Sundareshan, a Democrat who represents Legislative District 18, said refundable credits or exempting tips and overtime from taxes could be beneficial for lower-income workers. But the provision in Trump's bill, she said, only benefits people who have a tax burden, not workers who pay little federal tax.
“Adding to deductions really only affects that small percentage of those workers that might be able to take advantage of it,” she said.
According to the Budget Lab at Yale University, 37% of tipped workers pay no federal income tax.
A bill that would have exempted tips from state income tax passed the Arizona House last session but stalled out in the Senate. House Bill 2081 would have subtracted tips from a worker’s Arizona gross income, costing the state about $31 million a year in tax revenue according to legislative estimates.
Lawmakers will need to introduce a new bill when the Legislature returns in January.
Kavanagh, a Republican from Legislative District 3, estimates the state would take a revenue hit of about $350 million if Arizona passes “no taxes on tips and overtime.”
“But I suspect that revenue growth – because Arizona is growing revenue-wise – will offset that,” he told ABC15, predicting the state would break even or even see a bit of revenue growth.
Sundareshan said that’s overly optimistic, pointing to Trump’s tariffs, continued inflation and the coming effects of federal budget cuts.
“We're not seeing and anticipating a rosier economic picture that will lead to higher revenues for the state in any way, shape or form,” she said.
