Does Virginia Tax Your Tips and Overtime in 2026?

In February 2026, Virginia made a change to how it handles federal tax law that hadn't happened in decades: it dropped "rolling" conformity to the Internal Revenue Code in favor of a fixed date. If you heard about that change and assumed it settled whether Virginia taxes your OBBBA tips and overtime deductions, it didn't. The Virginia Department of Taxation's own guidance says both stay taxable — and the reason has nothing to do with which IRC date the state picked.

Quick answer

Virginia does not conform to the OBBBA's tips or overtime deductions. Virginia Tax Bulletin 26-1, issued February 20, 2026, states directly that both remain fully taxable on Virginia returns. That's true even though the same bulletin adopts a new fixed conformity date of December 31, 2025 for most of the rest of the federal tax code. Your tip and overtime income is taxed at Virginia's regular graduated rates, topping out at 5.75% — a bracket that starts at just $17,000 of taxable income, so most full-time tipped and overtime workers are already in it.

What actually changed in February 2026

For decades, Virginia used "rolling" conformity: its tax code automatically followed whatever the Internal Revenue Code said, updated continuously as Congress changed it. Governor Abigail Spanberger signed House Bill 29 on February 20, 2026, replacing that with a fixed conformity date of December 31, 2025 — meaning Virginia now conforms to the IRC as it existed on that specific date, not whatever it happens to say today. Per Tax Bulletin 26-1, Virginia conforms to most of the 2025 federal budget reconciliation act (Public Law 119-21 — the OBBBA's formal name) but carves out a handful of business provisions: bonus depreciation, immediate R&E expensing, and it caps the disallowed business interest deduction at 20% instead of the federal 50%.

None of those carve-outs mention tips or overtime — but this site's state conformity tracker confirms the bulletin separately and explicitly states Virginia does not conform to either deduction. See the Virginia state page for the current status.

Why the IRC conformity date doesn't reach these deductions

Virginia taxable income is built on top of your federal adjusted gross income (Form 1040, line 11), not your federal taxable income. IRC conformity — rolling or fixed — governs which federal rules apply in computing that AGI: things like depreciation schedules, expensing rules, and what counts as gross income in the first place. That's exactly why Virginia's carve-outs target bonus depreciation and R&E expensing — those provisions change how AGI itself is calculated.

The OBBBA tips and overtime deductions never touch that calculation. They're claimed on the new IRS Schedule 1-A, which flows to Form 1040, line 13b — after AGI is already final. So even a state with the most generous possible IRC conformity date would need a separate law to give residents the state-level benefit. Virginia's Tax Bulletin 26-1 makes clear it hasn't done that — the fixed-date switch was about business provisions, not about the individual worker deductions everyone was asking about.

How much this actually costs you

Virginia's graduated brackets run 2%, 3%, 5%, and 5.75% — and that top rate starts at just $17,000 of Virginia taxable income, one of the lowest top-bracket thresholds in the country. In practice, that means nearly every full-time tipped or overtime worker in Virginia is already paying the 5.75% marginal rate on their last dollar of income, tips and overtime included, with no reduction for what they deducted federally.

Danielle bartends in Richmond, earning $31,000 in wages, $11,000 in qualified tips, and $2,500 in FLSA overtime premium. Federally, she deducts the full $13,500 under the OBBBA. On her Virginia return, none of that is exempt — her Virginia taxable income still includes the $13,500, taxed at her marginal 5.75% rate: about $776 in state tax on income that cost her nothing federally.

Could Virginia change this later?

Yes, but it would take new legislation specifically adding a tips or overtime subtraction to the Virginia tax code — the fixed conformity date alone won't do it, even in a future year, since these deductions sit outside the AGI calculation the conformity date governs. The General Assembly meets annually, so this could change in a future session. Check this site's state conformity tracker for updates.

Virginia's outcome — full taxability — lands in the same place as New Jersey's, but for a different reason: NJ computes its tax base entirely independently of federal AGI, while Virginia does conform to federal AGI — it's just that these specific deductions never enter it. Run your exact federal-plus-Virginia numbers with the Tips & Overtime Calculator.

Frequently asked questions

Does Virginia's new fixed conformity date mean it now follows the OBBBA?

Partially. Virginia conforms to most of the OBBBA (Public Law 119-21) as of its new December 31, 2025 fixed date, but Tax Bulletin 26-1 explicitly carves out several business provisions and does not extend a state-level benefit for the tips or overtime deductions.

Why doesn't IRC conformity cover the tips and overtime deductions?

Because Virginia taxable income starts from federal adjusted gross income, and the OBBBA deductions are claimed below that line, on Schedule 1-A, flowing to Form 1040 line 13b. IRC conformity governs how AGI is computed — it doesn't reach deductions taken after AGI is already set.

What tax rate applies to my tips and overtime in Virginia?

Your regular Virginia marginal rate — 2%, 3%, 5%, or 5.75% depending on your total taxable income. Because the top bracket starts at just $17,000, most full-time workers pay 5.75% on their last dollar of tips or overtime.

Does Virginia require an addback on my state return?

No addback is needed because there was never a subtraction to begin with — since the deduction doesn't reduce federal AGI, it was never removed from the number Virginia starts with. Your tips and overtime are simply part of your Virginia taxable income as usual.

Does FICA tax still apply to my Virginia tips and overtime?

Yes. Social Security (6.2%) and Medicare (1.45%) payroll tax apply regardless of state conformity or the federal deduction — those are separate from income tax entirely.

Sources

This site's state conformity tracker (last verified August 1, 2026); Virginia Department of Taxation, Tax Bulletin 26-1; Virginia Tax, Virginia's Rolling Conformity Replaced with a Fixed Date; IRS, Schedule 1-A, Additional Deductions. Conformity status can change with future legislation — verify current figures with the Virginia Department of Taxation directly.

This article is general information, not tax advice. Figures reflect guidance available as of August 2026 and can change. Consult a qualified tax professional or the Virginia Department of Taxation for your situation. Last reviewed August 10, 2026.