Senator wants Nebraska to exempt overtime, tips from state taxes

John Cavanaugh, a Democratic state senator and a candidate for Congress in the “blue dot” of District 2, on Friday found some common ground with President Donald Trump.

Cavanaugh is the sponsor of LB932, a bill that would change Nebraska’s tax code to mirror the federal tax code and exempt overtime pay and tips from state income taxes.

“It's rare that you'll find me in agreement with President Trump, but I think excluding overtime and tips from income tax is a good idea that actually supports working people,” he told the Revenue Committee on Friday.

The bill would change state law to exactly mirror federal law, which changed as part of passage of the One Big Beautiful Bill Act last year.

It would exempt up to $12,500 in qualified overtime compensation for an individual, up to $25,000 for a married couple, and up to $25,000 in qualified tip income, the amounts of which would be deducted from adjusted gross income.

According to the bill’s fiscal note, it could reduce state income tax collections by nearly $70 million over the next three years.

Cavanaugh seemed to understand his bill might have a hard time passing, even though it should be popular in a Republican-dominated legislature.

“I understand we're facing budget crunch,” he said, referencing what’s estimated to be a nearly $472 million shortfall. “I think at the very least, we need to have a conversation about what changes in federal income tax Nebraska should prioritize to best serve the people of Nebraska.”

The bill appears to have support from the public, as it received nine letters of support online and only one in opposition.

The only person to testify in person on the bill Friday was Lucas Bolton, who represents the State Troopers Association of Nebraska.

He said overtime is pretty much part of the job of those in law enforcement and, ”every hour of that overtime is earned while directly making Nebraska safer.”

“This bill simply provides a fair tax adjustment, so when troopers step up, more of that earned overtime stays in their pockets,” Bolton said.

The committee did not take a vote on the bill Friday.

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