California ‘No Tax On Tips’ Bill Halted in Senate Committee

A bill that would create a California state income tax deduction for tips was held in the Senate Appropriations Committee over the weekend, being one of over 400 pieces of legislation being sent to the Suspense File.

Senate Bill 17, authored by Senator Rosilicie Ochoa Bogh (R-Yucaipa) and Senator Suzette Martinez Valladares (R-Santa Clarita), would allow a deduction in determining adjusted gross income for an amount equal to the qualified tips received by a qualified taxpayer during the taxable year, not to exceed $20,000. SB 17 would also only be in place for ten years, going from the taxable years beginning on or after January 1, 2026, to before January 1, 2036. In addition, the bill updates the state’s tax code to align the definition of tips with federal standards while excluding licensed professionals, except barbers and cosmetologists, from claiming the deduction.

Bogh and Valladares wrote the bill as a form of monetary relief for Californians who rely on tips from their jobs, especially those employed under the tipped wage.

This bill would bring much-needed relief to Californians who rely on tips to survive. This measure reflects a growing bipartisan recognition that tips serve as a reward for exceptional service rather than a predictable income source. As more lawmakers and Americans in general see tips as a reward for exceptional service rather than a predictable income source, supporters of the bill hoped to give tipped workers more income. And, with more traditionally non-tipping locations asking for tips following purchases, around 75% of Americans see tipping as having gotten out of hand. This has made Americans less willing to tip, making the tips servers and others do get as even more crucial.

California hold, federal success

Despite opponents countering that eliminating taxes on tips would only make employers less willing to raise taxes, SB 17 got off to a flying start earlier this year, passing Senate committees with bipartisan and unanimous votes. On the federal side, the U.S. Senate pushed forward the No Tax on Tips Act with bipartisan support. Championed by President Donald Trump, the “No Tax on Tips Act” would establish a new tax deduction of up to $25,000 for tips, with the language generally being similar to SB 17, but on a national scale.

“I applaud the U.S. Senate for putting service workers first and providing much needed tax relief,” said Senator Ochoa Bogh in a statement last week. “Now it’s California’s turn. Tipped workers are taxed on inconsistent and unpredictable income causing instability for families already struggling to make ends meet. That is why I’m working diligently to get SB 17 to the finish line.”

However, SB 17 hit a snag shortly after the Senate passage of the federal bill in Washington. The Senate Appropriations Committee moved to send the bill to the Suspense File, indefinitely holding it up. Several reason for the holdup were given, including that the state needed every income source possible to help erase the current $12 billion deficit and concerns of how the restaurant industry would be affected. Bill supporters were livid on Tuesday over the delay.

“I am incredibly disappointed that the committee has failed to recognize the importance of providing tax relief to hardworking service industry employees,” noted Senator Ochoa Bogh. “Tips are not guaranteed income, they fluctuate and are dependent on the generosity of customers. This is not the end of the fight. I will continue advocating for the service industry workers who depend on tips to afford California’s high cost of living.”

“California’s failed policies have resulted in a self-inflicted affordability crisis that is putting a strain on millions of hard working Californians. Exempting tips from state tax would have provided some immediate relief for service sector workers who rely on their tips to make ends meet. This is a failure by the majority party and a missed opportunity to provide needed relief for Californians who need it most,” added Senator Valadares.

With the federal bill now in the House, supporters hope that a successful vote there and approval by President Trump, a big supporter of the issue, will lead to the state eventually approving a no tax on tips measure.