New Trump Tip and Overtime Tax Breaks Largely Ignored by States
An Associated Press review finds that while millions of Americans can now claim new federal income-tax deductions for tips, overtime wages and interest on loans for U.S.-assembled vehicles under a Trump-era law, only about a half-dozen states have chosen to mirror those breaks in their own income-tax codes for 2025 returns. Idaho, Iowa, Montana, North Dakota and Oregon are allowing all three deductions on state returns, Colorado is allowing only tips and auto-loan interest, and Alabama only the auto-loan deduction, leaving most workers still paying full state tax on those earnings. The piece details how different state conformity rules and political fights are producing confusion, including Arizona, where tax forms list all four Trump-linked state deductions under a November order from Democratic Gov. Katie Hobbs even though the legislature has not passed conforming law—raising the prospect that residents are being instructed to take deductions they are not yet legally entitled to. Other states like South Carolina and Wisconsin advanced, then killed or stalled, legislation to adopt the new breaks, in some cases to avoid also enacting Trump’s corporate-tax changes. With Wednesday’s filing deadline looming, the uneven state response underscores how federal tax cuts can be blunted or blocked at the state level, and how partisan battles over corporate tax policy are shaping whether low- and middle-income workers see parallel state relief on their tips and overtime pay.
📌 Key Facts
- A new Trump tax law created federal income-tax deductions for tips, overtime wages, and interest on loans for new vehicles assembled in the U.S., available for the first time this filing season.
- Only Idaho, Iowa, Montana, North Dakota and Oregon are offering all three deductions on state returns; Colorado allows tips and auto loans but not overtime, and Alabama allows only the auto-loan deduction.
- Most other income-tax states have not conformed, meaning workers can deduct these amounts federally but still owe state tax on them, and Arizona’s forms currently instruct taxpayers to claim deductions that are not yet backed by statute.
- South Carolina extended its refund deadline to October 15 in hopes of adopting the deductions, but the Senate ultimately defeated the enabling bill; Wisconsin’s GOP-led legislature passed similar breaks that have not been enacted.
📊 Relevant Data
In 2025, 69.8% of waiters and waitresses in the US are women, compared to approximately 47% of the overall labor force being women.
Employed people by detailed occupation, sex, race, and Hispanic or Latino ethnicity — U.S. Bureau of Labor Statistics
In 2025, 27.9% of waiters and waitresses in the US are Hispanic or Latino, compared to 19% of the US labor force.
Employed people by detailed occupation, sex, race, and Hispanic or Latino ethnicity — U.S. Bureau of Labor Statistics
In 2025, 24.2% of hourly paid workers in the US are Hispanic or Latino, compared to 19% of the overall labor force, and 15.1% are Black, compared to 12% of the labor force.
Wage and salary workers paid hourly rates with earnings at or below the prevailing Federal minimum wage by selected characteristics — U.S. Bureau of Labor Statistics
If all states conformed to the federal tax breaks on tips and overtime income, they would lose an estimated $8.6 billion in revenue annually in 2026.
Linking to Tipped and Overtime Income Deductions Would Cost States $3 Billion Annually — Institute on Taxation and Economic Policy
📰 Source Timeline (1)
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