Personal income taxes: unemployment insurance: tips.
- Excludes all tips and gratuities from California personal income tax starting January 1, 2026.
- Removes tips from unemployment insurance and payroll tax calculations for employers.
- Requires the Franchise Tax Board to track and report on the number of workers benefiting from tip exclusion.
- Treats tips as non-taxable gifts rather than earned income under state tax law.
California State Senators Ochoa Bogh, Grove, and Valladares propose fundamental changes to the state's treatment of tip income through legislation that would exclude gratuities from personal income tax and modify related employment regulations. The measure, set to take effect January 1, 2026, would remove tips from gross income calculations under state tax law and redefine them as gifts rather than wages.
The bill modifies both tax and unemployment insurance frameworks by excluding tips from state income tax withholding requirements and unemployment insurance contributions. Under the new provisions, tips would no longer factor into wage calculations for employment training taxes or unemployment benefits. The legislation defines tips as any gratuity provided by a customer or client of an employer's business.
To track the policy's implementation, the bill requires the Franchise Tax Board to collect and analyze data on the number of taxpayers excluding tips and the average value of tips excluded. This reporting requirement extends through December 2036, with a sunset date of December 2040. The measure also repeals existing state regulations governing tip reporting and withholding to align with the new tax treatment.
The changes affect multiple stakeholders in California's service industries, requiring employers to modify payroll practices and establishing new compliance frameworks for tax reporting. State agencies must implement revised procedures for tax collection and unemployment insurance administration when the provisions take effect.
 Shannon GroveR Senator | Bill Author |  Not Contacted | |
 Tim GraysonD Senator | Committee Member | Not Contacted | |
 Melissa HurtadoD Senator | Bill Author | Not Contacted | |
 Tom UmbergD Senator | Committee Member | Not Contacted | |
 Kelly SeyartoR Senator | Bill Author | Not Contacted |
Email the authors or create an email template to send to all relevant legislators.
Introduced By
- Excludes all tips and gratuities from California personal income tax starting January 1, 2026.
- Removes tips from unemployment insurance and payroll tax calculations for employers.
- Requires the Franchise Tax Board to track and report on the number of workers benefiting from tip exclusion.
- Treats tips as non-taxable gifts rather than earned income under state tax law.
Email the authors or create an email template to send to all relevant legislators.
Introduced By
California State Senators Ochoa Bogh, Grove, and Valladares propose fundamental changes to the state's treatment of tip income through legislation that would exclude gratuities from personal income tax and modify related employment regulations. The measure, set to take effect January 1, 2026, would remove tips from gross income calculations under state tax law and redefine them as gifts rather than wages.
The bill modifies both tax and unemployment insurance frameworks by excluding tips from state income tax withholding requirements and unemployment insurance contributions. Under the new provisions, tips would no longer factor into wage calculations for employment training taxes or unemployment benefits. The legislation defines tips as any gratuity provided by a customer or client of an employer's business.
To track the policy's implementation, the bill requires the Franchise Tax Board to collect and analyze data on the number of taxpayers excluding tips and the average value of tips excluded. This reporting requirement extends through December 2036, with a sunset date of December 2040. The measure also repeals existing state regulations governing tip reporting and withholding to align with the new tax treatment.
The changes affect multiple stakeholders in California's service industries, requiring employers to modify payroll practices and establishing new compliance frameworks for tax reporting. State agencies must implement revised procedures for tax collection and unemployment insurance administration when the provisions take effect.
Shannon GroveR Senator | Bill Author | Not Contacted | |
Tim GraysonD Senator | Committee Member | Not Contacted | |
Melissa HurtadoD Senator | Bill Author | Not Contacted | |
Tom UmbergD Senator | Committee Member | Not Contacted | |
Kelly SeyartoR Senator | Bill Author | Not Contacted |