Gov. Hobbs’ budget deal includes tax relief for workers in the tip-based economy

PHOENIX— The 2026 state budget deal has something for everyone – including people who make tips. The provision is a state effort to incorporate President Donald Trump’s “One, Big, Beautiful, Bill” in Arizona. 

This deal incorporates full federal tax conformity provisions, meaning that Arizona taxpayers will not have to refile their tax returns. Arizona is the first state to incorporate Trump’s tax cuts at the state level.

Arizona lawmakers passed the budget deal Wednesday. It will, according to Gov. Katie Hobbs’ statement, “put Arizona first and deliver opportunity, security and freedom throughout the state.”

The total budget is estimated to deliver $1.45 billion in tax relief over four years and keep spending growth to 3.05%. 

But for small businesses with tip-based employees, the bill’s effects might be less dramatic. 

Dennis Hoffman, the director of the Center for Competitiveness and Prosperity Research at the W. P. Carey School of Business at Arizona State University, explained that the budget wouldn’t have as big of an impact on employees as some small businesses might expect.

“It may be important relief to people that are earning tip money, but I don’t think it’s a significant amount of money that’s going to be lost in the state coffers,” Hoffman said.

Jenny Brown, an associate professor of accountancy at the W.P Carey School of Business, agrees that the impact will be minimal.

“This no tax on tips provision is really kind of more of a political play, it’s more of a political slogan,” Brown said. “Economically, it’s more accurate to describe it as a very targeted income tax deduction.” 

For some working class individuals, the bill can offer a glimmer of hope. Carlos Palomera, a server at JINYA Ramen Bar and senior at Walter Cronkite School of Journalism and Mass Communication at ASU, said he believed in the budget’s potential.

“I am a college student full time, (so) I rely on tips to pay my rent, pay my car, gas, groceries, like any other person,” Palomera said. “So I do agree with it.”

Palomera’s former coworker, Alyssa Hicks, worked in tip-based jobs for 10 years. She thought that the law was promising, but wouldn’t solve an economy that is already tip-based.

“It’s kind of putting a Band-aid on a bigger problem, and I think that problem is that American workers just aren’t paid a livable wage,” Hicks said. “I just feel like them doing no tax on tips is kind of giving them a reason to not increase the wages to a livable state.”

Still, both Democrats and Republicans have agreed that the budget deal will help working class Arizonans. 

“By adopting President Trump’s tax cuts at the state level, expanding tax relief for families and protecting educational freedom, we’re helping Arizonans keep more of their hard-earned money while ensuring our state remains economically competitive,” Senate President Warren Petersen said in a statement.

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