Sacramento, CA – Assemblywoman Kate Sanchez today announced the introduction of legislation, AB 1550, to bring California’s personal income tax law into conformity with recent federal changes affecting the taxation of tips and overtime pay.
Californians continue to face rising costs for housing, food, and everyday necessities, and many working families are relying on overtime hours and tip-based income just to stay afloat. Under current state law, both tips and overtime pay are taxed as regular income, increasing the burden on workers who are already doing more to make ends meet.
“Californians shouldn’t be penalized for working harder,” said Assemblywoman Sanchez. “Whether you’re a service worker relying on tips or an employee putting in overtime to support your family, this bill ensures the state isn’t taking more than it should from your paycheck.”
The bill would allow taxpayers to deduct qualified tips and qualified overtime compensation from their California taxable income for a limited period. For taxable years beginning between January 1, 2026, and January 1, 2029, the measure would adopt modified federal income tax provisions allowing these deductions to be taken in addition to the standard deduction, ensuring eligibility regardless of whether a taxpayer itemizes.
Under the proposed legislation, eligible service workers would be able to reduce their taxable income by the amount of qualified tips received, subject to specified limits. Non-exempt employees would also be permitted to deduct the premium portion of overtime pay, the additional half earned under time-and-a-half, from their state taxable income.
“This is about making California more affordable and giving working and middle-class families a fair shot,” Sanchez added. “When people are working extra hours just to keep up, the state should be helping, not making it harder.”
About Assemblywoman Sanchez
Assemblywoman Kate Sanchez represents California’s 71st Assembly District. She is a businesswoman and mother who has focused her legislative work on affordability, public safety, and accountability in state government. Her district includes the cities of Temecula, Rancho Santa Margarita, Mission Viejo, Murrieta, Wildomar, and unincorporated areas of French Valley, Temecula Wine Country, and Orange County
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