No Tax on Tips Pennsylvania 2026: Federal Deduction + State Status

Pennsylvania Tipped Workers: What 'No Tax on Tips' Really Means in 2026

If you earn tips in Pennsylvania, the phrase 'no tax on tips' making the rounds in 2026 needs an important asterisk. At the federal level, the One Big Beautiful Bill Act (OBBBA) created a real deduction of up to $25,000 on qualified tip income, effective for tax years 2025 through 2028. At the state level, however, Pennsylvania has not enacted any equivalent tax break. A bill that would exempt tips from Pennsylvania's income tax — House Bill 1610 — passed the Pennsylvania House of Representatives on June 25, 2025 by a 104-99 vote, but it has sat in the Senate Finance Committee ever since, with no hearing or vote recorded as of August 2026.

This guide separates fact from political shorthand. It explains exactly how the federal OBBBA tips deduction works for Pennsylvania residents, confirms — using the Pennsylvania General Assembly's own bill-tracking records — that no state-level tips tax break is currently law, and walks through what Pennsylvania's flat 3.07% income tax means for tipped workers today. Two worked examples show the real combined federal-and-state tax bill on $35,000 and $60,000 of annual tip income, plus what those numbers would look like if HB 1610 ever becomes law.

Where Pennsylvania's Own Tips Tax Break Actually Stands

Two different Pennsylvania bills get lumped into 'no tax on tips' headlines, and it's worth separating them because only one actually attempts to address tips.

House Bill 1610: The Bill That Actually Covers Tips

HB 1610, sponsored by House Democrats as part of a broader tax reform package, would amend Pennsylvania's Tax Reform Code of 1971 to exclude overtime pay — and, per contemporaneous reporting on the bill's House floor debate, tip income — from Pennsylvania personal income tax. The bill also bundles in unrelated corporate tax changes: a cut to the Corporate Net Income Tax from 7.99% to 4.99% by 2031, and a 'combined reporting' requirement for multi-state businesses. That bundling is likely why the bill has stalled. It passed the Pennsylvania House on June 25, 2025 by a narrow 104-99 vote, largely along party lines, and was referred the same day to the Senate Finance Committee, where it has remained without a hearing or vote for over a year as of August 2026. Pennsylvania's Senate is controlled by Republicans, and at least one Republican House member publicly said standalone tips-and-overtime provisions would likely pass unanimously if separated from the corporate tax provisions — but no standalone version has moved as of this writing.

House Bill 1586: Overtime Only, Not Tips

A separate Republican-sponsored bill, HB 1586, proposes a fully refundable Pennsylvania tax credit for state income tax paid on overtime wages — but it does not address tips at all. Introduced by Rep. Ryan Warner with 13 co-sponsors, it was referred to the House Finance Committee on June 10, 2025 and has recorded no votes since. It is relevant to overtime workers, not tipped workers, and is covered in this site's companion guide to Pennsylvania overtime taxation.

The Working Pennsylvanians Tax Credit: Enacted, But Unrelated to Tips

Pennsylvania did enact a new tax credit in its 2025-26 budget — the Working Pennsylvanians Tax Credit, signed by Governor Josh Shapiro on November 12, 2025, providing an estimated $193 million in relief to roughly 940,000 workers starting with the 2026 filing season. But this credit is modeled on the federal Earned Income Tax Credit (worth 10% of your federal EITC, up to $805) and applies to earned income generally — it has nothing specifically to do with tip income and does not exempt tips from Pennsylvania tax. Some coverage of Pennsylvania's budget has conflated this enacted EITC-style credit with the still-pending tips/overtime exclusion in HB 1610. They are separate provisions, and only the Working Pennsylvanians Tax Credit is actually law.

Bottom Line

As of August 2026, Pennsylvania has zero enacted state-level tax break specifically for tip income. Every dollar of tips a Pennsylvania worker earns remains fully subject to the state's 3.07% flat income tax, regardless of what happens with the federal OBBBA deduction.

The Federal OBBBA Tips Deduction: What Actually Applies Right Now

While Pennsylvania's own legislation sits in committee, the federal OBBBA tips deduction is real, enacted law and applies to Pennsylvania residents exactly as it does everywhere else in the country.

• Amount: Up to $25,000 of qualified tip income can be deducted from federal Adjusted Gross Income (AGI).
• Mechanism: This is an above-the-line deduction, not a credit or exemption. It reduces the income that federal tax brackets apply to — it is claimed on Schedule 1 of Form 1040 and does not require itemizing.
• FICA is unaffected: Social Security (6.2%) and Medicare (1.45%) — 7.65% combined — still apply to every dollar of tip income. The OBBBA deduction only touches federal income tax.
• Phase-out: The deduction phases out dollar-for-dollar above $150,000 AGI for single filers and $300,000 AGI for married filing jointly. Most Pennsylvania tipped workers — servers, bartenders, hotel staff, hairstylists — earn well below this threshold and can claim the full $25,000.
• Qualifying occupations: The deduction applies to cash tips, credit card tips, and other gratuities received in an occupation where tipping was customary before 2025 — restaurant and bar service, hospitality, personal care, and similar roles. Mandatory service charges are treated as wages, not tips, and do not qualify.
• Sunset: The deduction expires December 31, 2028 unless Congress extends it.

Because Pennsylvania has not conformed to this federal provision, the deduction only reduces your federal taxable income. Your Pennsylvania return is calculated separately, starting from your Pennsylvania taxable compensation — which, absent HB 1610 becoming law, includes the full amount of your tips.

Pennsylvania's Flat 3.07% Tax and Why It Still Applies to Every Tip Dollar

Pennsylvania taxes personal income at a flat 3.07% rate — one of the lowest state income tax rates in the country, but also one of the least forgiving in structure. Unlike the federal system, Pennsylvania has no standard deduction and no personal exemption. Every dollar of taxable compensation, starting from the first dollar, is taxed at 3.07%. There are no brackets to climb and no thresholds to cross — which also means there's no low-income carve-out that shields part of a tipped worker's income the way the federal standard deduction does.

Pennsylvania law defines 'compensation' broadly to include wages, salaries, and tip income reported by employees. Because HB 1610 has not been enacted, tips continue to be treated as ordinary taxable compensation for Pennsylvania purposes, with no OBBBA-style deduction or exclusion. A worker earning $30,000 in tips owes Pennsylvania $921 in state income tax on that amount alone (3.07% × $30,000) — before wages, before federal tax, before FICA.

On top of the state rate, most Pennsylvania municipalities and school districts levy a separate local Earned Income Tax (EIT) on wages and compensation, typically in the 1%–2% range, though Philadelphia's combined city wage tax runs as high as roughly 3.75% for residents. Local EIT is assessed independently of the state PIT and is not affected by the pending state tips legislation either. Tipped workers in Philadelphia, Pittsburgh, or any municipality with an EIT should check their specific local rate — this guide's worked examples focus on the state-level 3.07% PIT, which applies uniformly statewide.

Worked Example 1: $35,000 Tips + $15,000 Wages ($50,000 Total)

Scenario: single filer, Pennsylvania resident, $35,000 in tip income + $15,000 in regular wages = $50,000 gross income for 2026.

If HB 1610 were enacted and mirrored the federal tips exclusion, Pennsylvania tax in this scenario would fall to roughly $460 (3.07% × $15,000 wages only) — a savings of about $1,075. That is not current law. Figures are estimates; consult a tax professional for your exact situation.

Worked Example 2: $60,000 Tips + $10,000 Wages ($70,000 Total)

Scenario: single filer, Pennsylvania resident, $60,000 in tip income + $10,000 in regular wages = $70,000 gross income.

Under a hypothetical enacted HB 1610, Pennsylvania tax here would drop to roughly $307 (3.07% × $10,000 wages only), a savings of about $1,842. Again, this is illustrative of pending legislation only — not current law. Always verify your own numbers with a tax professional or the Pennsylvania Department of Revenue.

Tracking HB 1610: What to Watch For

Pennsylvania tipped workers who want to know if or when a state tips tax break might actually take effect should watch a few specific signals rather than relying on political headlines.

• Senate Finance Committee action: HB 1610 has sat in this committee since June 25, 2025 with no hearing scheduled as of August 2026. A committee vote or amendment would be the first real sign of movement.
• A standalone bill: Because HB 1610 bundles the tips-and-overtime provisions with corporate tax changes that have drawn Republican opposition, a narrower, standalone bill covering only tips and overtime has a materially better chance of passage — some Republican lawmakers have publicly floated this as a compromise.
• State budget negotiations: Pennsylvania's budget process has historically been where major tax provisions get resolved, as it was for the Working Pennsylvanians Tax Credit in the 2025-26 budget (signed November 2025). The 2026-27 budget cycle is a plausible vehicle for any tips/overtime deal, though nothing is confirmed.
• Effective date, if passed: As drafted, HB 1610 would apply prospectively — it would not be retroactive to tips already earned before enactment.

This guide will be reviewed again by November 2026 to check for any change in status. Until then, Pennsylvania tipped workers should plan around the current, confirmed reality: the federal OBBBA deduction is available, and the state 3.07% tax on tips remains in effect with no exemption.