Does My State Tax Tips and Overtime? A 2026 State-by-State Guide
The new federal deductions can save you real money on your IRS bill. But most states do not automatically follow along, so your state may still tax every dollar of your tips and overtime.
This is the surprise that catches a lot of workers. You hear "no tax on tips" and "no tax on overtime" and assume it is total. It is not. Those are federal deductions. Whether your state honors them depends on one technical detail about how your state builds its tax return, and for most states the answer is no.
Why most states do not follow the federal deduction
The four new deductions are claimed on the federal Schedule 1-A and are below-the-line: they cut your federal taxable income but not your federal adjusted gross income (AGI). That matters because most states start their own tax return from your federal AGI, not your taxable income. Since the deductions live below that line, they are simply invisible to those states unless the state legislature passes its own version.
Only a handful of states start from federal taxable income, and those are the ones where the deduction can flow through automatically, unless the state chose to add it back.
The four categories your state falls into
1. No state income tax (nothing to worry about)
If you live here, there is no state income tax on wages at all, so the question does not apply: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
2. Automatically follows the federal deduction
These states start from federal taxable income, so the deductions generally flow through by default: Idaho and North Dakota. Oregon actively chose to keep the tips and overtime deductions through legislation (SB 1507), though it added back the car loan interest deduction. Colorado keeps the tips deduction but added back the overtime deduction starting 2026. South Carolina, Montana, and Iowa are often grouped here but their status is genuinely unclear, so verify before relying on it.
3. Passed its own separate state deduction
A few states that start from AGI chose to create their own carve-out. These are separate state rules, sometimes smaller than the federal one:
- Georgia exempts up to $1,750 of overtime and $1,750 of tips, tax years 2026 to 2028.
- Indiana conforms to tips, overtime, and car loan interest, but for 2026 only.
- Michigan created state tips and overtime deductions for 2026 to 2028.
- Arizona directed its revenue department to add these deductions administratively, though the legal footing is debated.
4. Still taxes your tips and overtime (the default)
This is the biggest group. Roughly 31 states plus D.C. start from federal AGI and have not passed their own deduction, so they continue to tax your tips and overtime in full. Confirmed here so far are California, New York, Illinois, Massachusetts, Virginia, Maine, and the District of Columbia, along with most other AGI-based states that took no action. If your state is not listed in categories 1 through 3 above, assume you are in this group until you confirm otherwise.
Quick reference table
| Your state | State tax on tips & overtime? |
|---|---|
| AK, FL, NV, NH, SD, TN, TX, WA, WY | No state income tax at all |
| Idaho, North Dakota | Follows federal by default |
| Oregon | Follows for tips & overtime; taxes car loan interest |
| Colorado | Follows tips; taxes overtime (2026+) |
| Georgia | Own smaller deduction (~$1,750 each), 2026-28 |
| Indiana | Own deduction, 2026 only |
| Michigan | Own deduction, 2026-28 |
| CA, NY, IL, MA, VA, ME, DC + most others | Yes, still fully taxed |
| SC, MT, IA, MO, LA, WV, AZ | Uncertain, verify with your state |
What to do next
First, calculate your federal savings, which everyone in every state gets: use the tips calculator and overtime calculator. Then check your state's Department of Revenue website for "OBBBA conformity" or "tips overtime deduction 2026" to see if you get a state benefit too. States that decouple usually add an addback line to their tax form, so watch for that when you file.
Frequently asked questions
Does the no tax on tips deduction apply to my state taxes?
Usually not. It is a federal deduction claimed below the AGI line, and most states start from federal AGI, so they do not pick it up automatically. Only a few states conform or passed their own version. Check your state's rules.
Which states do not tax overtime in 2026?
States with no income tax (like Texas and Florida) never did. Among income-tax states, Idaho, North Dakota, and Oregon follow the federal overtime deduction, and Georgia, Indiana, and Michigan created their own. Colorado taxes overtime again starting 2026. Most other states still tax it.
Why does my federal return say no tax on overtime but my state still taxes it?
Because they are separate tax systems. The federal deduction reduces your federal taxable income only. Your state uses its own rules, and unless your state conformed or passed its own deduction, it still taxes the full amount.
Will more states add this deduction?
Possibly. Several states have bills pending for 2026 and 2027. This area is changing quickly, so check with your state Department of Revenue each filing season.