Tax on tips and overtime pay could be scrapped for people living in Pennsylvania, if two new pieces of legislation are passed in the state.
Two Republican members in the state’s House of Representatives have introduced two separate bills, one that would scrap tax on tips, and another that would scrap tax on overtime pay.
The bills are at early stages of consideration but if they are passed, they would impact the around 1.3 to 1.5 million tipped employees who work in the state.
Why It Matters
Under the Fair Labor Standard Act (FLSA), Americans who work beyond their typical 40-hour workweek are entitled to receive at least 1.5 times their standard pay rates for every extra hour of labor. This extra pay is currently subject to federal income tax.
Alex Brandon/AP Photo
The Pennsylvania legislation echoes a priority President Donald Trump campaigned on before the November 2024 presidential election. Trump proposed several tax cuts for Americans, including exemptions for income earned from overtime work, tipped income, and Social Security benefits.
In May, he put the measure to stop taxes on overtime pay in his spending bill, “the one big, beautiful bill.” He claimed it would be an incentive to work and help companies attract employees. Opponents have raised concerns about a loss in revenues for the federal government.
What To Know
Republican state representative Joe Hogan introduced a bill which will amend a tax code. This would mean tips would not be considered taxable income.
The bill has 17 co-sponsors, all of whom are also Republicans.
AP Photo/Matt Rourke
Meanwhile, another Republican representative, Ryan Warner, introduced another bill to remove overtime wages from being considered taxable income.
This bill has 12 co-sponsors, who are also all Republicans.
What People Are Saying
In a co-sponsored memorandum, Hogan and Warner said: “Hundreds of thousands of Pennsylvanians work in the service industry or in a field where overtime hours are offered. For some, it’s a part-time job to help bring in more household income. For others, the extra work is needed just to stay afloat.”
They added: “These working people are the backbone of our economy and deserve a tax cut. The change we will propose will also help businesses retain their employees and encourage out-of-state workers to move to Pennsylvania to benefit from our tax policy.”
Speaking to Newsweek, Mark Luscombe, principal analyst for Wolters Kluwer’s Tax and Accounting Division North America, previously warned that “the perception that tipped employees have a tax advantage may discourage tipping or at least the same amount of tipping by customers who are fully taxed on their incomes.”
What Happens Next
The bills are being considered in the House Finance Committee. If they pass the state House of Representatives, they will then need to be considered in the Senate before being passed by the governor.
Meanwhile, Sens. Roger Marshall (R-Kansas) and Tommy Tuberville (R-Alabama) introduced similar federal legislation on May 6, the Overtime Wages Tax Relief Act. Under this, individual workers would be able to deduct up to $10,000 in overtime pay, while married couples would be able to deduct up to $20,000. The break would phase out high-earners once individual adjusted gross income reaches $100,000 or a married couple’s income reaches $200,000.
