Will Your State Still Tax Your Tips and Overtime in 2026?
'No tax on tips and overtime' is federal only. Whether your state follows depends on conformity — and many states still tax both. Find your state's status.
The 'no tax on tips and overtime' break is federal only. Your state decides separately whether to honor it — and many don't. If you live in one of the nine states with no wage income tax, the question is moot. Everywhere else, whether your tips and overtime escape state tax comes down to a single concept: conformity.
What state conformity means
Conformity is how closely a state's income tax code tracks the federal code. A state that 'conforms' to a federal deduction lets you take the same deduction on your state return; a state that 'decouples' makes you add the income back and pay state tax on it anyway.
States generally fall into three camps on the OBBBA deductions. Some conform automatically because their tax starts from federal taxable income after this deduction. Some begin from federal adjusted gross income calculated before the deduction, so the federal break doesn't carry over. And some have passed their own laws to specifically include or exclude tips and overtime.
The no-income-tax states
Nine states don't tax wage income at all, so tips and overtime were never taxed at the state level there: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. (New Hampshire and Washington tax certain investment or capital-gains income but not wages.) If you work in these states, the federal deduction plus no state wage tax means the only tax left on qualified tips and overtime is FICA.
The states that may still tax you
In the 41 states (plus D.C.) that tax wage income, the answer depends on each state's conformity rule and whether its legislature acted. A state that decouples from the federal deduction will still tax your tips and overtime even though your federal return excluded them. This is the trap: workers see 'no tax on tips' in the headlines, then discover their state return still counts every dollar.
Conformity is moving fast as state legislatures respond in 2026. Look up your state's exact status → State Conformity Tracker.
A quick example
Two servers each earn $22,000 in qualified tips. One works in Texas, the other in a state that taxes wages at 5% and decoupled from the federal tip deduction. Both deduct the full $22,000 on their federal returns and save the same federal tax. But the second server still owes about $1,100 in state income tax on those tips — a bill the first server never sees. Same federal law, very different take-home.
Your results already factor in your state's conformity when you run the numbers → Tips & Overtime Calculator.
Why this is still changing
OBBBA passed in mid-2025, and many states write their conformity into annual budget or tax bills. That means a state that doesn't conform today could conform retroactively, or vice versa, as 2026 legislative sessions wrap up. Because the federal deduction runs only through 2028, some states are deciding whether to follow for a temporary window at all. Until your state finalizes its treatment, the safe move is to keep records of your tips and overtime and check the tracker before you file.
What to do now
Find your state's current status, keep documentation of your qualified tips and overtime, and don't assume your state return mirrors your federal one. If your state still taxes these wages, the federal deduction is still worth claiming — it just won't be the whole story. For the federal mechanics, see our guides to no tax on tips and the overtime exemption.
Frequently asked questions
Does no tax on tips apply to state taxes?
Not automatically. The deduction is federal. Whether it reduces your state income tax depends on whether your state conforms to the federal rule, and several states have decoupled.
Which states have no tax on tips or overtime at all?
The nine states without a wage income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — never taxed tips or overtime at the state level, so workers there owe no state income tax on them regardless of conformity.
Can my state tax income my federal return excluded?
Yes. If your state decouples from the OBBBA deductions, it can require you to add the tips or overtime back and pay state income tax on amounts your federal return deducted.
How do I find my state's status?
Use our state conformity tracker, which lists every state's treatment of the tips and overtime deductions and links to the underlying legislation. It's updated as states act.
Does my city or local income tax follow the federal rule?
Local income taxes — in places like New York City or parts of Ohio and Pennsylvania — generally follow their state's lead, but not always. If you pay a local wage tax, confirm its treatment separately; it may tax tips and overtime even if your state doesn't.
This article is for general educational purposes and reflects guidance available as of June 2026. It is not tax advice. State conformity is changing — verify your state's current rule with its department of revenue or a qualified tax professional before filing.