In the final days of the federal filing season, the Internal Revenue Service’s deadline arrives as states take sharply different approaches to whether workers can carry over a new set of federal tax breaks for tips and overtime into their state returns. The federal deductions are available for the first time under the broad tax law enacted by President Donald Trump, but the ability to use similar state deductions depends on each state’s tax code.
Most states start with federal figures when calculating state income tax, but the rules differ once states decide whether to conform to federal changes. In states that do not match the federal law, workers who take the federal deduction for tips or overtime still owe state taxes on those earnings, according to the Associated Press overview of the filing landscape. The deadline is Wednesday for the federal government and most states.
For filers, the process can mean filling out two sets of forms. In “most states,” individuals must file a federal income tax return and a separate state income tax return, with the state generally using information from the federal return as a starting point. The article also outlines which states levy no income tax at all on wages and salaries—Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming—and notes that Washington and Missouri handle wages and salaries versus other types of income differently.
Even where states do tax wages and salaries, the AP report says most are still not adopting the specific new breaks for tips and overtime wages. It describes that only “about a half-dozen states” are mirroring the Trump-era law’s tax breaks on tips and overtime, and also the provision for loan interest on certain new vehicles assembled in the U.S. Idaho, Iowa, Montana, North Dakota and Oregon offer all three types of deductions, the report says. Colorado offers the tips and auto loan deductions but not the overtime tax break, and Alabama offers only the auto loan deduction.
The timing of state decisions can matter as well as the decision itself. The AP report notes that some states automatically apply federal tax changes to state returns unless state leaders opt out, citing Colorado as an example where officials opted out of the overtime tax deduction. In other states, the deductions are only available after state officials update their tax laws—Idaho is described as having updated its law.
Arizona stands out in the current filing cycle because its forms and executive action point toward the deductions without matching statutory adoption. State income tax forms list deductions for tips, overtime, auto loans and older residents tied to a November executive order from Democratic Gov. Katie Hobbs, the report says. But the report adds that Arizona law has remained unchanged after Hobbs vetoed two tax-break bills that would also have adopted Trump’s corporate tax breaks, and lawmakers have not passed a third attempt.
“It’s an extraordinarily unusual situation,” said Adam Chodorow, a law professor at Arizona State University who specializes in tax law, according to the AP report. Chodorow said the state could end up with many filers claiming deductions “who aren’t legally entitled to do so,” because “they are being instructed by the state government to take those deductions,” the report said.
Beyond Arizona, the AP account says some other states considered adopting the federal tax breaks but did not. In South Carolina, legislation to opt in passed the House but was defeated in the Senate, leading officials to extend the deadline to file for tax refunds to Oct. 15 to allow time for the Legislature to decide. In Wisconsin, the Republican-led Legislature passed bills to allow the tips and overtime deductions, but Democratic Gov. Tony Evers vetoed them on April 3.
For some states, the deductions are not only absent now—they are also scheduled to arrive later. The AP report says Indiana, Georgia and Michigan have passed legislation to allow tax deductions for tips and overtime wages starting with the 2026 tax year, meaning they are not available for people currently filing their 2025 returns. Oregon, meanwhile, is moving in the opposite direction, with Democratic Gov. Tina Kotek signing legislation that would stop offering the auto loan deduction and some corporate tax breaks for the 2026 tax year.
Overall, the AP report concludes that while the federal law provides new deductions for tips and overtime, other states could still opt in or opt out for future tax years. That patchwork approach means the final outcome for any individual filer can depend on where they live and whether their state has adopted the federal changes for the relevant tax year.