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A key finance panel on Tuesday inserted a one-year state income tax break on overtime and tips for Hoosier workers.
The amendment would cost the state $251 million in tax revenue and that loss would be covered by the growing state surplus, said Sen. Travis Holdman, R-Markle.
“This would be for just one year until we see if we can actually afford to go forward. And folks, this would come out of the reserves that we have accumulated at the state level,” Holdman said.
Lawmakers will decide during budget negotiations in 2027 whether to make it permanent.
Holdman, who chairs the Senate Tax and Fiscal Policy Committee, said it applies to 2026 wages on tax returns filed in 2027.
The amendment was inserted into Senate Bill 243, which passed 11-1. It now moves to the Senate floor.
Sen. Andrea Hunley, D-Indianapolis, voted against the bill after noting that Indiana continues to have a tax on period products even though it would cost the state only $5 million.
The amendment would couple Indiana’s tax code to federal tax code with regard to no tax on tips, no tax on overtime and no tax on loan interest for American-made vehicles passed in the One Big Beautiful Bill that President Donald Trump pushed through Congress last summer.
But it also cuts close to opening the current two-year budget, which Gov. Mike Braun and Republican legislative leaders have said they wouldn’t do.
Senate President Pro Tem Rodric Bray applauded the bill.
“These state income tax cuts are a concrete way we can help hardworking Hoosiers keep more of their hard-earned money,” Bray said. “These cuts come on the heels of our strong track record of cutting taxes. Statehouse Republicans have cut taxes more than 20 times in 10 years, the income tax rate dropped yet again on Jan. 1 of this year, and this year two-thirds of Hoosiers are expected to see a property tax bill lower than their 2025 bill following a historic property tax relief package resulting in $1.3 billion in property tax relief over the next three years.”
An analysis from Braun’s administration estimated that total state tax breaks on businesses and individuals from tax conformity could top $900 million over the next two years if the Legislature were to fully conform the state tax code with the federal changes.
The Senate already passed Senate Bill 212 to adopt a few of the federal tax breaks that would apply this tax season. This includes strengthening the state adoption tax credit.
The House is expected to take that legislation up quickly and send it to Braun for his signature.
The Indiana Capital Chronicle is an independent, nonprofit news organization that covers state government, policy and elections.
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