Your State May Still Tax Your Tips and Overtime
The new deductions live in federal law. Your state gets to make its own call, and most states have.
Here is the detail that shrinks a lot of expected refunds. The tips deduction, the overtime deduction, the car loan interest deduction, and the senior deduction all apply to your federal income tax. Whether they touch your state income tax depends entirely on where you live.
Why states differ
Every state with an income tax writes its own rules for how closely it follows the federal tax code. Some states copy federal changes automatically. Others freeze their link to the federal code at a past date and adopt new changes only if their legislature votes to. The 2025 law is new enough that states are still sorting themselves into camps.
The three situations you can be in
If you live in a state with no income tax at all, such as Florida, Texas, Tennessee, Nevada, or Washington, none of this matters. There is no state tax on your tips today and there was none before.
If your state automatically conforms to the federal code, your tips and overtime deductions likely flow through to your state return too, which is the best case.
If your state has its own rules or a frozen conformity date, you may deduct tips federally and still pay full state tax on them. Several large states work this way, and a server in one of them keeps paying state income tax on all $20,000 of tips even while the federal tax disappears.
How to find your answer
Search your state's department of revenue site for "tips deduction" or "conformity" plus the year, or simply let your tax software handle it, since the state forms are updated each season. If you use a preparer, it is a one sentence question. What matters is expectation: your federal refund gets the boost, your state refund may not.
Know your federal number first
The federal deduction is where the real money is either way. The free tips calculator and overtime calculator show your federal savings in seconds, and that number is solid no matter which state you file in.