Arizona's HB2081 aims to exempt tips from state income taxes, highlighting a significant party line division with nearly all Republicans supporting and most Democrats opposing.
Federal legislation, S.4621, known as the No Tax on Tips Act, proposes an above-the-line tax deduction for cash tips, reducing the taxable income for those receiving tips.
Proposals to exempt tips from taxation have been discussed in various states and at the federal level, following endorsements by political figures during the 2024 presidential campaigns.
The debate includes concerns over potential revenue loss, with estimates suggesting a significant impact on federal and state budgets if tips are exempted from both income and payroll taxes.
Critics argue that exempting tips could lead to increased tax avoidance strategies and might not benefit the majority of workers as intended, potentially affecting long-term social security benefits for tipped workers.
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