No Tax on Tips by State: Which States Follow the Federal Deduction?
No Tax on Tips by State: Which States Follow the Federal Deduction?
The One Big Beautiful Bill’s tips deduction lets workers deduct up to ~$25,000 in tips from their federal taxable income starting in 2026. But federal tax is only part of the equation. If your state also taxes income, you need to know whether your state will honor this deduction — or whether you will still owe state income tax on every dollar of tips you earn.
Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.
The answer depends on a concept called “federal conformity” — whether your state’s tax code automatically adopts changes to the Internal Revenue Code, or whether your state legislature must pass separate legislation to honor new federal deductions.
How Federal Conformity Works
States fall into three broad categories:
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Rolling conformity: The state automatically adopts the Internal Revenue Code as it exists on any given date. When the federal code changes, the state code changes with it — no legislative action needed.
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Fixed-date conformity: The state conforms to the Internal Revenue Code as of a specific date (e.g., January 1, 2024). New federal changes after that date are not adopted until the state legislature updates the conformity date.
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Selective conformity (decoupling): The state picks and chooses which federal provisions to adopt. Even if the state is generally in rolling conformity, it may specifically decouple from certain provisions.
The tips deduction is a brand-new above-the-line deduction that reduces federal Adjusted Gross Income (AGI). States that use federal AGI as their starting point for state taxable income will generally allow the deduction automatically. States that start from a different base, or that have decoupled from recent federal changes, may not.
States With No Income Tax — Automatic Win
If your state does not levy a personal income tax, the federal tips deduction is all you need. You are already paying zero state tax on tips.
| State | Income Tax Status | Tips Deduction Status |
|---|---|---|
| Alaska | No income tax | Not applicable — tips already untaxed at state level |
| Florida | No income tax | Not applicable — tips already untaxed at state level |
| Nevada | No income tax | Not applicable — tips already untaxed at state level |
| New Hampshire | No income tax on wages (interest/dividends tax repealed 2025) | Not applicable — tips already untaxed at state level |
| South Dakota | No income tax | Not applicable — tips already untaxed at state level |
| Tennessee | No income tax (investment income tax repealed 2021) | Not applicable — tips already untaxed at state level |
| Texas | No income tax | Not applicable — tips already untaxed at state level |
| Washington | No income tax on wages (capital gains tax only) | Not applicable — tips already untaxed at state level |
| Wyoming | No income tax | Not applicable — tips already untaxed at state level |
9 states where tipped workers pay zero state income tax on tips regardless of federal law. This is the simplest scenario.
Rolling Conformity States — Likely to Honor the Tips Deduction
These states automatically adopt changes to the federal Internal Revenue Code without legislative action. Because the OBBB’s tips deduction reduces federal AGI, and these states start their tax calculations from federal AGI, tipped workers in these states should see the deduction flow through automatically.
| State | Conformity Type | Tips Deduction Status |
|---|---|---|
| Colorado | Rolling conformity to federal taxable income | Likely honored automatically |
| Delaware | Rolling conformity to federal AGI | Likely honored automatically |
| Idaho | Rolling conformity | Likely honored automatically |
| Illinois | Rolling conformity to federal AGI | Likely honored — but see notes below |
| Iowa | Rolling conformity (updated 2024) | Likely honored automatically |
| Kansas | Rolling conformity | Likely honored automatically |
| Louisiana | Rolling conformity to federal AGI | Likely honored automatically |
| Maine | Rolling conformity | Likely honored automatically |
| Missouri | Rolling conformity | Likely honored automatically |
| Montana | Rolling conformity | Likely honored automatically |
| Nebraska | Rolling conformity to federal AGI | Likely honored automatically |
| New Mexico | Rolling conformity | Likely honored automatically |
| North Dakota | Rolling conformity to federal taxable income | Likely honored automatically |
| Oklahoma | Rolling conformity to federal AGI | Likely honored automatically |
| Oregon | Rolling conformity to federal taxable income | Likely honored automatically |
| Rhode Island | Rolling conformity to federal AGI | Likely honored automatically |
| South Carolina | Rolling conformity to federal taxable income | Likely honored automatically |
| Utah | Rolling conformity to federal AGI | Likely honored automatically |
| Vermont | Rolling conformity to federal AGI | Likely honored automatically |
| West Virginia | Rolling conformity to federal AGI | Likely honored automatically |
~20 states where the tips deduction is likely to be honored automatically through rolling federal conformity.
Fixed-Date Conformity States — Depends on Legislative Update
These states conform to the Internal Revenue Code as of a specific date. If that date is before the OBBB was enacted, the state’s tax code does not yet recognize the tips deduction. The state legislature must pass a bill updating the conformity date.
| State | Conformity Date (Current) | Tips Deduction Status | Notes |
|---|---|---|---|
| Alabama | Varies by provision | Uncertain — legislature must act | AL often updates conformity annually |
| Arizona | January 1, 2024 | Not yet honored | Legislature must update to 2025+ |
| Arkansas | January 1, 2024 | Not yet honored | Update expected in 2026 session |
| Connecticut | Selective | Uncertain | CT frequently decouples from federal changes |
| Georgia | January 1, 2024 | Not yet honored | Legislature must update conformity date |
| Hawaii | December 31, 2023 | Not yet honored | HI typically lags 1–2 years behind |
| Indiana | January 1, 2024 | Not yet honored | Legislature must update to 2025+ |
| Kentucky | December 31, 2023 | Not yet honored | Update expected in 2026 session |
| Maryland | Selective | Uncertain | MD picks and chooses federal provisions |
| Michigan | January 1, 2024 | Not yet honored | Legislature session in progress |
| Minnesota | December 31, 2023 | Not yet honored | MN has historically been slow to update |
| Mississippi | Selective | Uncertain | MS may require separate legislation |
| North Carolina | January 1, 2024 | Not yet honored | NC has been moving toward rolling conformity |
| Ohio | Selective | Uncertain | OH uses a modified federal starting point |
| Pennsylvania | Selective | Uncertain | PA has its own income tax base (flat rate) |
| Virginia | December 31, 2023 | Not yet honored | VA typically updates conformity annually |
| Wisconsin | December 31, 2023 | Not yet honored | WI has historically been slow to update |
~17 states where the tips deduction depends on legislative action. Most of these states update their conformity dates regularly, but there is no guarantee they will adopt the OBBB’s tips deduction on the same timeline.
States to Watch — High-Tax States That May Not Conform
Four high-tax, high-population states deserve special attention because they have a history of decoupling from federal tax changes and because tipped workers in these states stand to lose the most if the deduction is not honored.
California
- Conformity status: Fixed-date conformity (January 1, 2015 for most provisions)
- Tips deduction status: Not honored as of early 2026
- Why it matters: California has the largest restaurant workforce in the country and among the highest state income tax rates (top rate ~13.3%). A server earning ~$25,000 in tips could owe ~$1,000+ in California state income tax on tips even while paying zero federal tax on those same tips.
- Likelihood of conforming: Low in the near term. California has historically been very selective about which federal provisions it adopts and has not updated its IRC conformity date since 2015 for most provisions.
New York
- Conformity status: Selective conformity
- Tips deduction status: Uncertain — depends on legislative action
- Why it matters: New York’s top state rate is ~10.9% (plus NYC tax of up to ~3.876%). Tipped workers in New York City face a combined state/city marginal rate that makes the federal savings partially offset by state tax.
- Likelihood of conforming: Moderate. New York has historically adopted some TCJA provisions but rejected others. The tips deduction may face political debate in Albany.
New Jersey
- Conformity status: Selective conformity
- Tips deduction status: Uncertain — depends on legislative action
- Why it matters: NJ’s top rate is ~10.75%. Tipped workers at Atlantic City casinos and NJ restaurants may see no state-level benefit from the federal tips deduction.
- Likelihood of conforming: Moderate. NJ adopted the new SALT cap provisions quickly but may be slower on other OBBB items.
Illinois
- Conformity status: Rolling conformity to federal AGI
- Tips deduction status: Should be honored automatically — but watch for decoupling legislation
- Why it matters: Illinois uses federal AGI as its starting point and has a flat ~4.95% rate. The tips deduction should flow through, but Illinois faces severe budget pressures that could motivate decoupling from provisions that reduce state revenue.
- Likelihood of conforming: High (rolling conformity), but risk of specific decoupling is real.
Complete 50-State + DC Summary Table
| State | Income Tax? | Conformity Type | Tips Deduction Status |
|---|---|---|---|
| Alabama | Yes | Fixed-date (varies) | Uncertain |
| Alaska | No | N/A | Not applicable |
| Arizona | Yes | Fixed-date (Jan 2024) | Not yet honored |
| Arkansas | Yes | Fixed-date (Jan 2024) | Not yet honored |
| California | Yes | Fixed-date (Jan 2015) | Not honored |
| Colorado | Yes | Rolling | Likely honored |
| Connecticut | Yes | Selective | Uncertain |
| Delaware | Yes | Rolling | Likely honored |
| District of Columbia | Yes | Rolling | Likely honored |
| Florida | No | N/A | Not applicable |
| Georgia | Yes | Fixed-date (Jan 2024) | Not yet honored |
| Hawaii | Yes | Fixed-date (Dec 2023) | Not yet honored |
| Idaho | Yes | Rolling | Likely honored |
| Illinois | Yes | Rolling (AGI) | Likely honored |
| Indiana | Yes | Fixed-date (Jan 2024) | Not yet honored |
| Iowa | Yes | Rolling | Likely honored |
| Kansas | Yes | Rolling | Likely honored |
| Kentucky | Yes | Fixed-date (Dec 2023) | Not yet honored |
| Louisiana | Yes | Rolling | Likely honored |
| Maine | Yes | Rolling | Likely honored |
| Maryland | Yes | Selective | Uncertain |
| Massachusetts | Yes | Fixed-date (Jan 2022) | Not honored |
| Michigan | Yes | Fixed-date (Jan 2024) | Not yet honored |
| Minnesota | Yes | Fixed-date (Dec 2023) | Not yet honored |
| Mississippi | Yes | Selective | Uncertain |
| Missouri | Yes | Rolling | Likely honored |
| Montana | Yes | Rolling | Likely honored |
| Nebraska | Yes | Rolling | Likely honored |
| Nevada | No | N/A | Not applicable |
| New Hampshire | No (wages) | N/A | Not applicable |
| New Jersey | Yes | Selective | Uncertain |
| New Mexico | Yes | Rolling | Likely honored |
| New York | Yes | Selective | Uncertain |
| North Carolina | Yes | Fixed-date (Jan 2024) | Not yet honored |
| North Dakota | Yes | Rolling | Likely honored |
| Ohio | Yes | Selective | Uncertain |
| Oklahoma | Yes | Rolling | Likely honored |
| Oregon | Yes | Rolling | Likely honored |
| Pennsylvania | Yes | Selective | Uncertain |
| Rhode Island | Yes | Rolling | Likely honored |
| South Carolina | Yes | Rolling | Likely honored |
| South Dakota | No | N/A | Not applicable |
| Tennessee | No | N/A | Not applicable |
| Texas | No | N/A | Not applicable |
| Utah | Yes | Rolling | Likely honored |
| Vermont | Yes | Rolling | Likely honored |
| Virginia | Yes | Fixed-date (Dec 2023) | Not yet honored |
| Washington | No (wages) | N/A | Not applicable |
| West Virginia | Yes | Rolling | Likely honored |
| Wisconsin | Yes | Fixed-date (Dec 2023) | Not yet honored |
| Wyoming | No | N/A | Not applicable |
Summary count:
| Category | Count |
|---|---|
| No income tax (automatic) | 9 states |
| Rolling conformity (likely honored) | ~21 states + DC |
| Fixed-date (needs update) | ~13 states |
| Selective/uncertain | ~7 states |
What Tipped Workers Should Do Right Now
1. Know Your State’s Status
Use the table above to determine whether your state will honor the federal tips deduction for 2026. If your state is “uncertain” or “not yet honored,” monitor your state legislature’s actions during 2026.
2. Track Your Tips Carefully
Regardless of your state’s conformity status, the federal tips deduction requires documentation. Keep records of all tips received — both cash and credit card tips reported by your employer on your W-2. The IRS will verify tips claimed on Schedule 1A against your W-2 data.
3. File Federal and State Separately If Needed
If your state does not honor the tips deduction, your federal AGI (with the deduction) and your state AGI (without it) will differ. Most tax software handles this automatically, but if you file manually, be aware that your state return may start from a different income figure than your federal return.
4. Adjust State Withholding
If you live in a rolling-conformity state, the tips deduction will reduce both your federal and state tax liability. Consider adjusting your state W-4 to reduce over-withholding.
5. Watch for State Legislation
Several states are expected to pass conformity updates during their 2026 legislative sessions. If your state currently shows “not yet honored,” check again before filing your 2026 return. Our tax filing deadlines guide covers key dates.
How Much the State Deduction Is Worth
The value of the state tips deduction depends on your state’s tax rate and how much you earn in tips.
| State Tax Rate | Tips Deducted | State Tax Savings |
|---|---|---|
| ~3% (low-tax state) | ~$15,000 | ~$450/year |
| ~5% (mid-tax state) | ~$15,000 | ~$750/year |
| ~7% (high-tax state) | ~$15,000 | ~$1,050/year |
| ~10% (very high-tax state) | ~$15,000 | ~$1,500/year |
| ~13% (California top rate) | ~$25,000 | ~$3,250/year |
For a California server earning ~$25,000 in tips, the difference between the state honoring the deduction and not honoring it is roughly ~$3,250/year. This is a material amount that could affect where tipped workers choose to live and work.
Frequently Asked Questions
If my state does not conform, can I still claim the federal tips deduction?
Yes. The federal tips deduction is available to all qualifying workers regardless of their state’s position. You simply will not get the corresponding state tax benefit.
What about self-employed tipped workers?
The federal tips deduction applies to both employees and self-employed workers (e.g., independent hairstylists, rideshare drivers). State conformity works the same way — states in rolling conformity should honor it for both employee and self-employed tips.
Can my state pass its own separate tips deduction?
Yes. Several states are considering standalone legislation to create a state-level tips deduction even if they do not broadly conform to the federal code. Watch your state legislature for developments during 2026.
I work in one state but live in another. Which state’s rules apply?
Generally, you owe income tax in the state where you physically perform the work (the “source state”) and may receive a credit in your home state. You will need to check conformity status for both states. For example, a server living in NJ but working in NY would need to know both states’ positions.
Does the tips deduction affect Social Security and Medicare taxes?
No. The tips deduction is an income tax deduction only. Tips remain subject to Social Security tax (6.2%) and Medicare tax (1.45%) regardless of the deduction. Self-employed tipped workers still owe self-employment tax on their tip income.
How will I report the tips deduction on my state return?
In rolling-conformity states, the deduction flows through automatically because the state starts from federal AGI (which already reflects the deduction). In non-conforming states, your tax software will add back the tips deduction on your state return. If filing manually, look for a state-specific “additions to income” line.
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.