Connecticut Lawmakers Push Bill to Eliminate State Taxes on Tips and Overtime Pay

Connecticut legislators are advancing a bill that would eliminate state income taxes on tips and overtime pay, potentially putting more money in the pockets of thousands of service workers across the state.

House Bill 5010, dubbed the “No Tax on Tips” bill, would extend federal legislation passed last year by creating state-level exemptions for gratuities and overtime wages from personal income tax requirements, according to testimony at a Finance, Revenue and Bonding Committee hearing Friday.

The legislation could impact approximately 75,000 service employees statewide, according to Scott Dolch, president of the Connecticut Restaurant and Hospitality Association. Dolch’s organization represents 170,000 employees across Connecticut’s hospitality sector.

“Connecticut is unfortunately one of the most expensive places to live,” Dolch told lawmakers. “Any way that we can do something to help our middle class, to help our workers and especially in our industry, it sends a powerful message.”

Small business owners testified in support of the measure, arguing it would benefit both workers and the broader economy. Michelle Nicholson, owner of The Flour Girl bakery in Hebron, employs roughly 35 people across her businesses and spoke about the practical impacts of the proposed tax relief.

“When working people keep more of their earnings, that money tends to move quickly through our local communities, paying for gas, groceries, childcare, and spending at other small businesses,” Nicholson said during the hearing. “The local circulation supports the regional economy and even more revenue for the state.”

Nicholson explained that overtime pay, calculated at 1.5 times regular hourly wages, sometimes pushes employees into higher tax brackets that don’t reflect their actual financial circumstances. She argued that eliminating taxes on overtime could encourage workers to pick up additional shifts.

“An overtime shift isn’t a windfall. It is what happens when someone stays late, covers a shift or shows up when the schedule is tight,” Nicholson testified. “Those are the hours and earnings that keep our community running and they keep restaurants and cafes staffed.”

Republican lawmakers framed the legislation as targeting income sources that are inherently unpredictable. Representative Vincent Candelora said the government should avoid taxing inconsistent earnings like tips and overtime pay, which can fluctuate significantly week to week.

“We believe that people who are working overtime and working tipped wages, which are unpredictable on any given day. We just shouldn’t be subjecting that to taxation,” Candelora said at a briefing before the committee meeting. “The government doesn’t need the money.”

State Representative David Rutigliano, who identified himself as a small business owner, emphasized the bill’s potential benefits for hospitality workers whose income varies based on customer traffic and seasonal demands.

“This is one way to give people a break,” Rutigliano said. “Something that the federal government has done that we can now do in Connecticut to put more money in the pocket of hard-working men and women.”

The bill represents a bipartisan effort to address Connecticut’s high cost of living by reducing the tax burden on workers in service industries, according to supporters. Under current law, both tips and overtime wages must be reported as taxable income on state returns.

If passed, Connecticut would join the federal government in providing tax relief specifically targeted at service workers and those earning overtime wages, potentially keeping more dollars in local communities across the state.