Which States Are Blocking No Tax on Overtime?

State Conformity: Who’s In, Who’s Out

Not every state follows the federal no tax on overtime deduction. The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) created federal deductions for both overtime (IRC §225) and tips (IRC §224) — but whether those deductions flow through to your state income tax depends on your state’s conformity with the Internal Revenue Code and, critically, on where its tax calculation starts. Most states begin from federal adjusted gross income (AGI), and because the overtime and tips deductions are below-the-line — taken after AGI — they never reach those states’ returns unless the state passes its own law. This tracker covers all 50 states plus D.C. so you can find your state’s status on no tax on tips and overtime.

For the full breakdown of how the federal deduction works, see the complete no tax on overtime guide. To estimate your federal savings, use the overtime tax calculator.

No State Income Tax — 9 States

Workers in these nine states benefit fully from the federal overtime and tips deductions because there is no state income tax on wages to worry about. The federal deduction (claimed on Schedule 1-A) is the only layer of savings, and it applies in full.

• Alaska
• Florida
• Nevada
• New Hampshire (no tax on wages; the Interest & Dividends Tax was repealed effective January 1, 2025)
• South Dakota
• Tennessee
• Texas
• Washington (no tax on wages; a new 9.9% tax on income over $1M starts in 2028 — far above the deduction’s phaseout range)
• Wyoming

States Where the Federal Deduction Flows Through — 5 States

These five states calculate state income tax starting from federal taxable income (not AGI), so the federal overtime and tips deductions carry into the state return. Iowa, Montana, North Dakota, and Oregon use rolling IRC conformity — their tax codes automatically incorporate federal changes. Idaho updates its conformity by legislation: House Bill 559, signed in February 2026, conformed Idaho to most OBBBA provisions including the overtime and tips deductions, retroactive to the 2025 tax year. Workers in all five states receive both a federal and a state tax reduction on qualifying overtime.

• Idaho (conformed via H.B. 559, February 2026, including tax year 2025; estimated cost: $167M in 2026 — Tax Foundation)
• Iowa (rolling conformity, confirmed by the Iowa Department of Revenue; estimated cost: $134M)
• Montana (rolling conformity; estimated cost: $67M)
• North Dakota (rolling conformity; estimated cost: $29M)
• Oregon (rolling conformity; Publication OR-17 confirms the deductions are claimable. Oregon’s 2026 disconnect bill, SB 1507, removed other OBBBA items but kept the overtime and tips deductions intact; estimated cost: $419M)

Rolling conformity means these states follow the IRC as it exists for a given tax year. If a state legislature acts to decouple before year-end, a deduction could be reversed for that year. Check your state tax agency for the latest. (ITEP)

States That Actively Adopted — Michigan, Indiana & Arizona

Michigan (2026–2028)

Michigan was the first state to actively adopt both the federal overtime and tips deductions at the state level. Governor Whitmer signed H.B. 4961 (2025 PA 24) on October 7, 2025. The state deduction applies Michigan’s flat 4.25% income tax rate to the same qualifying amounts as the federal deduction.

Indiana (2026 Only)

Governor Braun signed Senate Enrolled Act 243 on March 5, 2026, conforming Indiana to the federal overtime and tips deductions for tax year 2026. Indiana’s conformity is a one-year window — the 2027 General Assembly will decide whether to extend the exemptions beyond 2026. Indiana’s income tax rate is 2.95% in 2026, and the deduction also applies against county income taxes, so the combined state and local benefit is meaningful for Hoosier workers.

Arizona (Retroactive to 2025)

Arizona adopted both deductions in its 2026 taxation omnibus (Laws 2026, ch. 140, signed June 13, 2026). New state subtractions mirror the amounts deducted federally under IRC §224 (tips) and §225 (overtime), retroactive to tax years beginning after December 31, 2024 — making Arizona the only state whose adoption covers the 2025 tax year. Federal caps and phaseouts apply.

Partial State Substitutes: Alabama & Georgia

Two more states created their own smaller overtime tax breaks rather than adopting the federal deduction. Alabama (Act 2026-604) allows a deduction for the overtime premium portion of wages, capped at $1,000 per taxpayer per year, for 2026–2028. Georgia expressly decoupled from the federal deductions but enacted its own exclusions of up to $1,750 for qualified overtime (full-time hourly workers, 2026–2028) and $1,750 for cash tips (from 2026).

Decoupled or Blocked — 27 States + D.C.

In these states, the federal overtime deduction does not reduce state income tax — either because the state explicitly decoupled, or because its tax calculation starts from federal AGI, which the below-the-line deduction never reaches. Workers in these states still get the full federal deduction on their federal return.

• California — Static conformity date of January 1, 2025. The OBBBA was signed after that date, so the overtime and tips deductions do not flow through to California state returns. A conformity bill (AB 1550) was held in committee in April 2026. California daily overtime (hours over 8/day) does not qualify for the federal deduction either — only FLSA overtime (40+ hrs/week) qualifies.
• Colorado — HB 25-1296 (signed May 2025) requires an addback of the federal overtime deduction starting with tax year 2026 — for 2025, the overtime deduction flowed through to Colorado returns. The tips deduction still flows through. Ballot Initiative 119, which would have reversed the overtime addback, expired without qualifying for the ballot.
• Kentucky — HB 757 (2026) updated Kentucky’s conformity date but expressly excludes the §224 tips and §225 overtime deductions. Both remain fully taxable.
• Maine — Governor Mills directed the state tax assessor to adopt federal treatment only for selected business provisions — not tips or overtime. The conformity bill LD 2010 died on adjournment on April 29, 2026.
• Massachusetts — DOR TIR 26-4 (June 2026) confirms Massachusetts does not adopt the tips or overtime deductions. Personal income tax conformity is fixed at the IRC as of January 1, 2024.
• New York — New York’s calculation starts from federal AGI, so the federal deductions never flowed through and no addback is needed. Overtime remains fully taxable at the state level; overtime exemption bills (including S3914-A) have not been enacted. Tips are different: the FY2027 budget (Chapter 59 of 2026, signed May 28, 2026) exempts up to $25,000 of qualified tips from New York AGI starting with tax year 2026.
• Rhode Island — Expressly decoupled from P.L. 119-21 by statute and regulation (280-RICR-20-55-16, effective December 15, 2025). No addback is needed, but there is no Rhode Island benefit and withholding continues.
• South Carolina — Conformity remains at the IRC as of December 31, 2024. DOR Information Letter 26-4 requires taxpayers to adjust their state returns for the federal tips and overtime deductions. A conformity bill (H.3368) passed the House 121–0 but failed in the Senate 16–27 on March 31, 2026; it could still be revived.
• Wisconsin — Governor Evers vetoed conformity bills SB 36 (tips) and AB 461 (overtime) on April 3, 2026. Override attempts failed in both houses on May 13, 2026, making the vetoes final. Wisconsin’s conformity remains at the IRC as of December 31, 2022.
• Washington, D.C. — Temporary D.C. Law 26-89 disallows the deductions for 2025. Congress passed a disapproval resolution (P.L. 119-78, February 2026), but the District continues to treat the law as in force, so the 2025 status remains disputed. Separately, the FY2027 budget legislation pending before the Council would re-couple and allow the deductions starting with tax year 2026.
• Structurally blocked (state starts from federal AGI — no flow-through, most confirmed by state revenue agency guidance): Connecticut, Delaware, Illinois, Maryland, Minnesota, Missouri, Nebraska, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, Utah, Vermont, Virginia, and West Virginia. Several of these updated their IRC conformity dates in 2026 (Minnesota, North Carolina, Vermont, Virginia, West Virginia) without adopting the deductions — below-the-line deductions simply never enter an AGI-start calculation.
• Hawaii (overtime) — Hawaii’s 2026 conformity act adopted the §224 tips deduction (from 2026) but did not adopt the §225 overtime deduction, per Department of Taxation Announcement 2026-06.

Full 50-State + D.C. Conformity Table

What “No Action” Means for Your State

Only four states — Arkansas, Kansas, Louisiana, and Mississippi — have taken no legislative or administrative action on the federal overtime and tips deductions. In practice, workers there are in the same position as in the “blocked” states: all four either use a standalone state tax code or start their calculation from federal AGI, so the below-the-line federal deductions cannot reach the state return unless the legislature passes its own law.

The distinction that matters most is your state’s starting point. States that begin from federal taxable income (like Idaho, Iowa, Montana, North Dakota, and Oregon) receive the deductions automatically through conformity. States that begin from federal AGI — the large majority — never see them, because the deductions are taken after AGI on the federal return. That is why so many states needed (or would need) their own legislation, like Michigan’s H.B. 4961 or Arizona’s 2026 subtractions.

This tracker is reviewed regularly as state legislatures and revenue agencies act. If your state is listed with no action, check with your state tax agency or consult a local CPA before assuming anything applies at the state level. To check whether you meet the four federal eligibility requirements, use the eligibility checker.