New Trump Tip and Overtime Tax Breaks Largely Ignored by States
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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.