Does Your State Tax Tips & Overtime? 2026 Conformity Tracker

The federal OBBB tips and overtime deductions are below-the-line. That means they reduce your federal taxable income, not your federal adjusted gross income (AGI).

This matters because most state income tax returns start with a number copied straight off your federal return — usually federal AGI. If your state starts from federal AGI, the federal deduction was subtracted after that number was set, so it never reaches your state return. Your state still taxes the tips and overtime.

A smaller group of states starts from federal taxable income (already reduced by the federal deduction) with rolling conformity to the current Internal Revenue Code. In those states, the OBBB deductions flow through automatically. Iowa, Montana, North Dakota, and Oregon are the classic examples.

Other states use static (fixed-date) conformity — they pin to the IRC as of a specific date. If that date is before OBBB, they don't pick up the deduction until the legislature passes a bill updating the conformity date, or a standalone tips/overtime bill. Indiana and Michigan chose that path for tax year 2026. Idaho updated its fixed conformity date with House Bill 559 in February 2026, retroactive to tax year 2025.

A state can also write its own, narrower break instead of adopting the federal one. Georgia did not adopt the federal deductions; its HB 463 lets filers subtract up to $1,750 of qualified overtime (full-time hourly employees only) and up to $1,750 of cash tips for tax years 2026 through 2028, and nothing for 2025. That is why Georgia shows as Partial.

Finally, a state can pass an add-back — a line on the state return that re-adds the federal deduction back to state taxable income. Illinois uses that mechanic for both deductions; Colorado uses it for overtime only.