States / Arizona
AZ state income tax · checked October 14, 2026
Does Arizona tax tips and overtime?
No. Arizona lets you subtract the same tips and overtime you deduct federally, starting with 2025 returns.
| Arizona return | Tips | Overtime |
|---|---|---|
| 2025 | Not taxed (follows federal) | Not taxed (follows federal) |
| 2026 | Not taxed (follows federal) | Not taxed (follows federal) |
The details
HB 4168, signed June 13, 2026, created Arizona subtractions for qualified tips and qualified overtime to the extent you deduct them on your federal return, for tax years beginning in 2025. Two earlier conformity bills were vetoed.
The Arizona Department of Revenue’s Middle Class Tax Cuts Package (MCTCP) worksheet is how 2025 filers claim it on Form 140. The same law also covers the car loan interest and senior deductions.
The federal deductions apply either way. See who qualifies for no tax on tips, how the overtime deduction works, and where both go on Schedule 1-A.
States with the same 2026 treatment
All 50 states and D.C. · Alaska · Arkansas
Questions
Does Arizona tax tips in 2026?
For 2026, Arizona doesn’t tax the qualified tips you deduct on your federal return.
Does Arizona tax overtime in 2026?
For 2026, Arizona doesn’t tax the qualified overtime you deduct on your federal return.
What about my 2025 Arizona return?
For 2025, Arizona doesn’t tax the qualified tips you deduct on your federal return. For 2025, Arizona doesn’t tax the qualified overtime you deduct on your federal return.
Does the federal deduction still apply?
Yes. Whatever your state does, you can still claim the federal deductions on Schedule 1-A if you qualify: up to $25,000 of qualified tips per return and up to $12,500 of qualified overtime ($25,000 joint), phasing down above $150,000 of MAGI ($300,000 joint).