No tax on tips and overtime?

Workers and restaurants spent Friday urging Connecticut lawmakers to follow Congress’s lead and exempt their extra earnings from state income tax.

But can Connecticut afford it? And is this the best way to dish out tax relief?

Southport Diner is serving up a slice of home on the Post Road in Fairfield.

“It’s like ‘Cheers,’” said owner Tony Pertesis. “Everybody knows your name.”

Servers are a big part of that family atmosphere. They survive on tips, but taxes take a bite out of all that added income.

“I’m not just passing through,” said Pete, a veteran waiter. “This is kind of like a career. So yeah, to me it’s pretty important.”

Pete is one of an estimated 170,000 workers who could benefit from exempting tips and overtime from Connecticut’s state income tax. They joined Republicans at a hearing in Hartford to push for the change.

“Many of these workers, again, as I said before, are middle-class workers,” said state Rep. Joe Polletta (R-Watertown). “Maybe they’re paying their way through school. They're trying to pay off their student loans. Maybe it’s a single mom trying to provide for her children.“

Congress passed a similar law last year.

Under President Donald Trump’s Big Beautiful Bill, you can now deduct up to $25,000 in tips and $12,500 in overtime on your federal return. Those tax breaks get phased out for the wealthy – and they only run for the next three years.

“That would be amazing,” Pete said. “Considering they take the taxes out of our hourly rate.”

Restaurant owners said it could also help with chronic staffing shortages since the COVID pandemic.

“They’re here doing the hard work,” said Michelle Nicholson, who owns Flour Girl Bakery Café in Hebron. “I need them to show up when we have people call out, when we have overtime hours that are needed.”

But the proposed tax break comes with a high price tag – $128 million each year, according to the state Office of Policy and Management.

Gov. Ned Lamont is skeptical.

“The administration will closely monitor these proposals as they advance through the legislative process and will work hand-in-hand with legislative leaders to deliver an honestly balanced budget that strengthens affordability and long-term fiscal stability,” said Lamont's communications director, Rob Blanchard.

Many Democrats prefer an $1,800 child tax credit for families making up to $200,000 per year.

“I would want to be mindful of that, so we’re not fulfilling a proposal that just makes our upside-down tax system even worse,” said state Rep. Kate Farrar (D-West Hartford).

GOP leaders insist there is enough money.

“We’ve had billions of dollars in surpluses,” said Connecticut House Republican leader Vin Candelora (R-North Branford). “We believe the money should just stay back with them.”

At Southport Diner, Pertesis thinks the economic impact outweighs any lost revenue.

“It’ll put more money into the economy,” he said. “If they can keep more of their money, they’ll spend more.”

You can submit written testimony HERE.

For now, the legislation includes few details. State lawmakers will negotiate more details over the next few weeks, before the bill gets a possible vote in the General Assembly’s tax-writing committee.