18 June 25th - July 1st, 2026 phoenixnewtimes.com PHOENIX NEW TIMES | NEWS | FEATURE | FOOD & DRINK | ARTS & CULTURE | MUSIC | CONCERTS | CANNABIS | Even before legislators put these state income tax changes into law, they applied to 2025 state taxes. This year, filers were advised to claim those tax breaks on their Arizona returns. Tipped workers make up only about 1.3% of the state’s workforce, based on 2024 figures from the Peter G. Peterson Foundation, a nonpartisan organization focused on financial policy. Yet anyone who makes more than $30 a month in tips can be considered a tipped worker, per federal law. That not only includes baristas, bartenders and servers but also staff at hotels or salons, dog walkers, house- keepers and taxi or delivery drivers. The state estimates tipped workers won’t have to pay taxes on about $23 million in tips this year and $18-19 million in future years, said Dan Bogert, the Arizona Restaurant Association’s chief operating officer. “That’s real money in people’s pockets,” he said. Yale’s Budget Lab estimates service workers will get about $10 to $45 back on their federal taxes if their income falls somewhere between $21,000 and $76,000. Tipped workers who make more than that stand to see the most benefit, while the lowest earners, those making under $21,000, won’t see any change in their taxes. Arizona’s already-low 2.5% income tax and small share of tipped workers make these exemptions for tips and overtime “kind of a nothing burger at the state level,” economist Dennis Hoffman said. He’s run the tax revenue forecasting model used by the state’s Executive Budget Office since 1982 and is an economics professor at Arizona State University’s W.P. Carey School of Business. For those workers, however, Hoffman says the tax exemption is a “bright spot.” “You don’t have to pay taxes, but I think more importantly, you’re going to want to be thinking about how you maxi- mize tip income over ordinary income going forward,” he said. The Arizona Center for Economic Progress, a nonpartisan advocacy group, cautions that this short-term relief through $1.4 billion in tax cuts over the next several years could prove costly over time and reduce the tax revenue available to invest in state priorities. “Arizona has lost nearly $11 billion to tax cuts over the past 30 years, while the state’s tax system remains one of the most regressive in the nation,” the group shared on Friday after the budget’s approval. “The state cannot keep cutting the revenue needed to fully fund child care, public K-12 education, health care, housing, water and food assistance and still expect to build a strong, competitive economy.” The money Rascon, the Songbird barista, earns from his tips helps him continue living in downtown Phoenix. “Not having to worry about those taxes obviously would — as cost of living is rising here — that would help a great deal,” he says. Barista Enzo Rascon says the no-tax-on-tips provision in Arizona is “very beneficial” for service workers like him. (Sara Crocker) Tax Free from p 16
