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. Some states auto-conform, others have actively adopted or blocked the deductions, and many have not yet decided. 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; taxes interest and dividends only)
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

States That Conform by Default — 5 States

These five states use rolling IRC conformity, meaning their tax codes automatically incorporate federal changes — including the overtime and tips deductions — unless the legislature explicitly decouples. As of April 2026, none of these states have decoupled from the overtime or tips deductions. Workers here may receive both a federal and a state tax reduction on qualifying overtime.

• Idaho (estimated cost: $167M in 2026 — Tax Foundation)
• Iowa (estimated cost: $134M)
• Montana (estimated cost: $67M)
• North Dakota (estimated cost: $29M)
• Oregon (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, the deduction could be reversed retroactively for that year. Check your state tax agency for the latest. (ITEP)

States That Actively Adopted — Michigan & Indiana

Michigan (2026–2028)

Michigan is the first state that actively chose to adopt both the federal overtime and tips deductions at the state level. Governor Whitmer signed H.B. 4961 (2025 PA 24) in October 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 Bill 243 into law, 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, plus county income taxes, so the combined state and local benefit is meaningful for Hoosier workers.

Decoupled or Blocked — 8 States + D.C.

These states have explicitly decoupled from or blocked the federal overtime and/or tips deductions at the state level. Workers in these states still get the full federal deduction on their federal return — state decoupling only affects state income tax.

• 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. 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) decouples from the overtime deduction specifically but kept the tips deduction. Taxpayers must add back federal overtime deductions on their Colorado return. A ballot initiative (Initiative 119) could reverse this if it qualifies for November 2026.
• Connecticut — Decoupled from both overtime and tips deductions through selective conformity.
• Illinois — Decoupled from both. Tips and overtime remain fully subject to Illinois state income tax.
• Maine — Governor Mills directed the state tax assessor not to conform to either the tips or overtime deductions. The legislature is considering conformity legislation (LD 2010) as of early 2026, but the governor recommends against it.
• Massachusetts — Decoupled from both through selective (partial) conformity. Has not adopted OBBBA individual deduction provisions.
• New York — Requires full addback of federal tip and overtime deductions on state returns (Form IT-225). Governor Hochul has signaled a potential state-level exemption bill, but nothing has been enacted as of April 2026. Senate Bill S3914 is in committee.
• Wisconsin — Governor Evers vetoed conformity bills (SB 36 for tips, AB 461 for overtime) in April 2026, citing concerns about ceding state tax policy to Congress.
• Washington, D.C. — The D.C. Council passed emergency legislation to fully decouple from both overtime and tips deductions. Congress passed a joint resolution to nullify the D.C. law, but D.C. officials argue the review period expired. The legal status remains disputed as of April 2026.

Full 50-State + D.C. Conformity Table

What “Undecided” Means for Your State

Most states with income taxes have not yet acted on the federal overtime and tips deductions. “Undecided” means the state legislature has not passed legislation to conform, decouple, or require an addback — and the state’s default conformity posture may or may not incorporate the deductions depending on its IRC conformity date and method.

This table is updated monthly as state legislatures act. If your state is listed as undecided, check with your state tax agency or consult a local CPA before assuming the deduction applies at the state level. To check whether you meet the four federal eligibility requirements, use the eligibility checker.