Personal income taxes: deductions: tips.

California Senators Ochoa Bogh, Grove, and Valladares propose allowing service industry workers to deduct up to $20,000 in reported tips from their gross income for state tax purposes. The deduction would apply to tax years 2026 through 2035 for workers who regularly receive more than $20 monthly in tips and meet specific income thresholds.

The deduction would be available to individuals earning up to $125,000 annually, or $250,000 for joint filers, heads of household, and surviving spouses. Eligible workers must not hold professional licenses from the Department of Consumer Affairs, with an exception for those licensed by the State Board of Barbering and Cosmetology. The bill requires taxpayers to maintain documentation of deducted tips, which must be reported under federal tax and social security regulations.

The Franchise Tax Board would oversee implementation and must report to the Legislature by December 2036 on the number of taxpayers claiming the deduction and the average amount deducted. The bill includes a sunset provision, automatically repealing the deduction after tax year 2035 unless extended by future legislation.