Wisconsin Governor Vetoes Tax Relief Bills for Tipped and Overtime Workers

Governor Tony Evers vetoed two GOP-backed bills on April 3 that would have eliminated Wisconsin state income tax on tips and overtime pay, leaving an estimated 90,000 tipped workers in the state without the roughly $1,300 in annual state savings their counterparts in conforming states stand to gain.

The veto is a direct consequence of the widening gap between federal and state tax policy following a national shift. In July 2025, President Trump signed legislation allowing tipped workers earning less than $150,000 to deduct up to $25,000 in tips from their federal taxable income, and letting certain overtime-eligible employees under that same income threshold deduct up to $12,500 in overtime pay. Wisconsin Senate Bill 36 and Assembly Bill 461 were written to mirror those federal deductions at the state level.

Evers rejected both bills, writing in his veto message that he objected to adopting "a temporary income tax provision instead of working to provide comprehensive and lasting relief to Wisconsin taxpayers." He also took issue with what he called the Legislature "effectively ceding control over the direction of state tax policy to Congress" by tying the proposed state deduction directly to whatever the federal code dictates.

On the overtime bill specifically, Evers argued the break would create an unequal tax burden: a salaried worker earning $35,000 a year would pay a higher state tax rate than an hourly employee making the same income via overtime. "I object to this bill changing the tax code in a way that will treat Wisconsin workers who earn similar wages differently just because of their classification as salaried or hourly workers," he wrote.

Wisconsin's Department of Revenue had projected that SB 36 alone would have reduced state tax collections by $53.2 million in fiscal year 2026 and $44.1 million in fiscal year 2027. The nonpartisan Wisconsin Policy Forum said the bills could have delivered relief to hundreds of thousands of workers across the state.

For Taco Bell crew members and other restaurant workers in Wisconsin, the immediate practical effect is a split filing reality. The federal deduction for tips still exists and appears on Schedule 1 of the federal return, but the state return offers no corresponding break unless the legislature passes new legislation. Accountants in Wisconsin are already fielding questions about that distinction. Nikki Gralapp, an accountant with SVA Certified Public Accountants, captured what workers feel when that break disappears: "Everybody has a story why they worked overtime, or why, you know, they might be working a second tipped job."

For franchise operators running locations across multiple states, the Wisconsin veto is a reminder that state conformity to federal tax changes is never automatic. Payroll teams should be prepared to issue separate guidance for Wisconsin employees explaining that tip income and overtime pay remain fully taxable at the state level, even as the federal deduction provides partial relief on the same return.

Republicans who pushed the bills hold majorities in both chambers of the Wisconsin legislature, and an override attempt or a reintroduced measure with different terms remains possible as the 2026 session continues. For now, the paycheck math is straightforward: federal relief exists; Wisconsin relief does not.