16 June 25th - July 1st, 2026 phoenixnewtimes.com PHOENIX NEW TIMES | NEWS | FEATURE | FOOD & DRINK | ARTS & CULTURE | MUSIC | CONCERTS | CANNABIS | Tax Free With new state budget, Arizona workers no longer have to pay taxes on tips. BY SARA CROCKER A lmost half of the money barista Enzo Rascon makes working at a downtown cafe comes from tips. He works about 25 to 30 hours a week at Songbird Coffee & Tea House. Rascon estimates that tips account for at least 40% of his barista income. When the cafe is busy, that proportion crests to 60%, he notes while sitting on the historic bungalow’s quaint patio. “We are getting paid minimum wage,” Rascon said, “so living off of tips is how we make a living here.” Now, a provision in the nearly $18.3 billion state budget signed by Gov. Katie Hobbs on Saturday means he and other hospitality workers who earn tips will be able to keep a little more cash in their pockets. Last Thursday, Arizona legisla- tors approved a package of bills that will lock in about $1.4 billion in tax cuts over the next four years, including a provision meaning tipped workers no longer have to pay taxes on their tips. The approval of the budget comes after months of tense negotiations between the Democratic governor and the leadership of the Republican- majority legislature. Earlier this year, Hobbs vetoed a Republican-backed bill and budget that included these provi- sions, sharing concerns about tax breaks for high earners and big business. After signing off on the budget, which goes into effect on July 1, Hobbs touted no taxes on tips and overtime among the budget wins. “With this historic middle-class tax cut, I’m proud to say that every year I’ve been governor, we’ve cut taxes,” Hobbs said in a news release. “As our families struggle with high costs because of Washington’s misguided policies, I’m glad to put more money in Arizonans’ pockets.” Rascon has followed this year’s budget conversations and whether Arizonans should have to pay taxes on their tips and overtime pay. He sees the change in how tips are treated as “very beneficial.” “We all got to make a living, and if things are rising as far as the cost of living and everything else, then I think it makes sense to go this route,” he said. What’s changed for tipped workers? Once these state tax changes go into effect in July, Arizona will have the unique distinction of being the first state to align its state tax laws with the federal changes made last year under the One Big Beautiful Bill Act, legislative Republicans said. Among those changes to the federal tax rules are an increased standard deduction, an increased child care tax credit, no tax on up to $25,000 in tips and no tax on up to $12,500 in overtime pay for an individual or $25,000 for people who file taxes jointly. Several of these tax exemptions, including for tips and overtime, end in 2028. With new state budget, Arizona workers no longer have to pay taxes on tips. (Courtesy of Arizona Governor’s Office) >> p 18 ▼ Food & Drink
