Most States Decline to Match Trump Federal Tax Breaks on Tips, Overtime and Auto Loans

Most states are declining to match President Trump’s recent federal tax breaks for tips, overtime pay and interest on auto loans for U.S.-assembled cars on their state tax returns this filing season, leaving the benefits limited in practice. Only five states — Idaho, Iowa, Montana, North Dakota and Oregon — have adopted all three deductions for state purposes; Colorado allows the tip and auto-loan deductions but not the overtime break, and Alabama has implemented only the auto-loan interest deduction. Arizona presents an unusual and potentially confusing case: state tax forms list the Trump-related deductions under a November executive order even though the legislature has not changed state law and the governor vetoed related bills, prompting warnings from tax experts that Arizonans may be instructed to claim deductions they are not yet legally entitled to.

The practical impact matters for millions of workers. There are roughly 2.33 million waiters and waitresses nationwide who stand to gain from the tip exclusion, and overtime relief would mainly help industries like manufacturing where workers averaged about 3.8 hours of overtime per week in 2025. States that have chosen to conform to the federal changes face fiscal consequences: seven states that have picked up the federal deductions for tips and overtime are estimated to lose a combined $648 million in revenue in 2026. How a state responds depends on its tax law: some automatically conform to federal tax changes unless they opt out — as Colorado did for overtime — while most require affirmative legislative action, as Idaho did to adopt the full package.

Public reaction has been polarized and amplified on social media, with conservative voices framing state refusals as betrayals of working-class voters and Democratic leaders blamed for blocking promised relief, while skeptical commentators say the White House pledge has been misleading because the benefits do not automatically flow to workers at the state level. Early mainstream coverage tended to report the federal policy and the political promise of relief; newer reporting, notably by PBS, has focused on the patchwork state responses, implementation mechanics and specific problems like the Arizona forms, shifting the narrative from a simple federal giveaway to a more complicated story about state law, administrative practice and who will actually see relief.