As the tax-filing deadline approaches, millions of Americans are set to claim new federal income tax breaks for tips and overtime wages under a law enacted by President Donald Trump. However, many will not receive these deductions on their state tax forms, as states have the discretion to conform to federal changes or not.
In states that do not conform, workers who benefit from federal deductions for tips or overtime will still owe state taxes on those earnings. Eight states—Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming—levy no income tax, while Washington taxes only capital gains and Missouri taxes wages but not capital gains.
Only about a half-dozen states are mirroring Trump's law by offering tax breaks on tips and overtime wages or for loan interest on new vehicles assembled in the U.S. Idaho, Iowa, Montana, North Dakota, and Oregon offer all three deductions, while Colorado offers tips and auto loan deductions but not overtime. Alabama offers only the auto loan deduction.
In Arizona, state tax forms list deductions for tips, overtime, and auto loans based on an executive order from Democratic Governor Katie Hobbs, but the law remains unchanged after she vetoed bills that included corporate tax breaks. This has created an unusual situation where taxpayers may claim deductions they are not legally entitled to.
Other states have seen mixed outcomes. South Carolina's attempt to opt in failed in the Senate, Wisconsin's Governor vetoed legislation, and Georgia, Indiana, and Michigan have enacted deductions starting from the 2026 tax year. Oregon may drop the auto loan deduction for 2026. The landscape remains fluid as states continue to decide on these tax breaks.
