Original research · State laws and revenue guidance + BLS OEWS · Last updated October 6, 2026
Status checked: October 6, 2026, against legislature and state revenue department sources. Employment: BLS OEWS, May 2025.
Most states still tax tips and overtime. The federal deductions (up to $25,000 of qualified tips and $12,500 of qualified overtime pay, $25,000 for joint filers, for 2025 through 2028) are taken after adjusted gross income. Most states start their income tax from federal AGI, so they don’t pick up the deductions unless they pass a law. In 2025, 68.6% of workers in key tipped jobs lived in states that taxed their tips.
Key findings
- 7 states allowed both deductions for 2025. Arizona, Colorado, Idaho, Iowa, Montana, North Dakota, and Oregon all start from federal taxable income or passed a conformity law, so the federal deductions carried through to the state return.
- 3 states and D.C. join for 2026. Michigan (2026 to 2028) and Indiana (2026 only) passed matching deductions. D.C.’s FY2027 Budget Support Act, effective October 2, 2026, allows both from 2026. Georgia created its own: up to $1,750 of cash tips and $1,750 of overtime.
- Colorado is dropping overtime. Starting with tax year 2026, Colorado makes workers add back the federal overtime deduction. Tips still carry through. Alabama went the other way on overtime: a new deduction of up to $1,000, but nothing for tips.
- Four states said no in writing. Kentucky’s 2026 conformity law excludes both deductions. South Carolina requires a 2025 add-back. Minnesota and Rhode Island start from federal AGI and confirmed tips and overtime stay taxable.
- 3.4 million tipped workers lived in states that taxed their tips in 2025. That is 68.6% of the 5.0 million people counted in 11 key tipped occupations across the states and D.C. (BLS, May 2025). Another 1.2 million live in states with no wage tax.
- Wisconsin came close. The legislature passed a tips exemption and an overtime subtraction. Both were vetoed, and override votes failed.
Running a salon with tipped staff?
Organize the team, tip records and payroll routine together. The salon guide walks through the staffing and business systems to put in place.
Which states tax tips and overtime in 2026?
The federal law covers 2025 through 2028. States are handling it three ways: carrying the federal deduction through, writing a smaller deduction of their own, or taxing tips and overtime as before. Most states with an income tax are in the last group, usually without a vote, because their tax starts from federal AGI.
Tips and overtime tax status in every state
Click a column header to sort. “None found” means we found no state deduction in official legislature or revenue department sources as of October 6, 2026. It does not mean a bill isn’t pending.
| State | Tips, 2025 | Overtime, 2025 | Tips, 2026 | Overtime, 2026 | Workers in tipped jobs, May 2025 | Details and sources |
|---|---|---|---|---|---|---|
| Alabama | None found | None found | None found | Own capped deduction | 53,050 | Alabama deduction for qualified overtime (federal IRC 225 definition) of up to $1,000 per taxpayer, tax years 2026 through 2028. No tips deduction. Alabama Legislature, HB 527 (ALISON bill search). |
| Alaska | No wage tax | No wage tax | No wage tax | No wage tax | 9,380 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| Arizona | Yes | Yes | Yes | Yes | 115,850 | Arizona subtracts the amounts deducted federally under IRC 224 and 225. Claimed on Form 140. Arizona Legislature, HB 4168 bill status. Arizona Dept. of Revenue, MCTCP worksheet. |
| Arkansas | None found | None found | None found | None found | 32,320 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| California | None found | None found | None found | None found | 556,940 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Colorado | Yes | Yes | Yes | No | 100,400 | Colorado starts from federal taxable income. Starting with tax year 2026, the federal overtime deduction must be added back. No add-back for tips. Colorado Dept. of Revenue, Individual Income Tax Guide (Jan. 2026). Colorado Office of the State Auditor, 2026-TE5. |
| Connecticut | None found | None found | None found | None found | 56,560 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Delaware | None found | None found | None found | None found | 17,110 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| District of Columbia | No | No | Yes | Yes | 28,400 | D.C. disallowed both deductions for 2025. The FY2027 Budget Support Act limits the disallowance to years before 2026 and allows both for tax years after Dec. 31, 2025. D.C. Council LIMS, B26-0458. D.C. Council LIMS, B26-0661. |
| Florida | No wage tax | No wage tax | No wage tax | No wage tax | 429,710 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| Georgia | No | No | Own capped deduction | Own capped deduction | 144,780 | Georgia decoupled from the federal deductions, then created its own: up to $1,750 of cash tips and up to $1,750 of qualified overtime for full-time hourly employees, tax years 2026 through 2028. Georgia General Assembly, HB 463. Georgia General Assembly, HB 1199. |
| Hawaii | None found | None found | None found | None found | 30,810 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Idaho | Yes | Yes | Yes | Yes | 22,440 | Deductions for qualified tips and overtime on Form 40, line 18. 2025 filers who filed before the update can amend. Idaho Legislature, H0559. Idaho State Tax Commission. |
| Illinois | None found | None found | None found | None found | 198,670 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Indiana | No | No | Yes | Yes | 90,700 | Indiana deduction for 2026 only, equal to the federal deduction (prorated if some income is exempt in Indiana). Indiana General Assembly, SB 243. Indiana DOR Information Bulletin #128. |
| Iowa | Yes | Yes | Expected (2026 forms pending) | Expected (2026 forms pending) | 47,990 | Iowa's 2025 instructions start from federal taxable income, so the federal deductions carry through. Iowa Dept. of Revenue, 2025 IA 1040 Expanded Instructions. |
| Kansas | None found | None found | None found | None found | 38,280 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Kentucky | No | No | No | No | 51,260 | Kentucky's 2026 conformity law excludes the IRC 224 and 225 deductions. Kentucky General Assembly, HB 869. |
| Louisiana | None found | None found | None found | None found | 66,320 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Maine | None found | None found | None found | None found | 17,610 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Maryland | None found | None found | None found | None found | 89,710 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Massachusetts | None found | None found | None found | None found | 127,120 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Michigan | No | No | Yes | Yes | 135,580 | Michigan deduction equal to the federal tips and overtime deductions for tax years 2026 through 2028. Not available for 2025. Michigan Legislature, 2025 PA 24. Michigan Treasury notice, Jan. 6, 2026. |
| Minnesota | No | No | None found | None found | 99,510 | Minnesota starts from federal adjusted gross income, so tips and overtime stay taxable. Bills to adopt the deductions (HF 3524, HF 3525) did not pass. Minnesota Dept. of Revenue, 2025-26 Tax Pro webinar Q&A. |
| Mississippi | None found | None found | None found | None found | 27,430 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Missouri | None found | None found | None found | None found | 94,300 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Montana | Yes | Yes | Expected (2026 forms pending) | Expected (2026 forms pending) | 17,130 | Montana's 2025 Form 2 instructions carry the federal deductions through federal taxable income. Montana Dept. of Revenue, 2025 Form 2 instructions. |
| Nebraska | None found | None found | None found | None found | 32,420 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Nevada | No wage tax | No wage tax | No wage tax | No wage tax | 89,900 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| New Hampshire | No wage tax | No wage tax | No wage tax | No wage tax | 22,360 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| New Jersey | None found | None found | None found | None found | 144,960 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| New Mexico | None found | None found | None found | None found | 24,980 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| New York | None found | None found | None found | None found | 324,570 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| North Carolina | None found | None found | None found | None found | 143,980 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| North Dakota | Yes | Yes | Expected (2026 forms pending) | Expected (2026 forms pending) | 14,020 | North Dakota's 2025 booklet starts from federal taxable income, so no state adjustment is needed. North Dakota Office of State Tax Commissioner, 2025 booklet. |
| Ohio | None found | None found | None found | None found | 170,600 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Oklahoma | None found | None found | None found | None found | 49,170 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Oregon | Yes | Yes | Expected (2026 forms pending) | Expected (2026 forms pending) | 56,920 | Oregon's 2025 Publication OR-17 carries the deductions through; nonresidents deduct Oregon-source tips and overtime. Oregon Dept. of Revenue, Publication OR-17 (2025). |
| Pennsylvania | None found | None found | None found | None found | 210,660 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Rhode Island | No | No | No | No | 19,550 | Rhode Island starts from federal AGI and will not allow the federal tips, overtime or car loan interest deductions. RI Division of Taxation, ADV 2025-20. |
| South Carolina | No | No | None found | None found | 83,050 | South Carolina requires a 2025 add-back of both federal deductions. No 2026 change found. SCDOR Information Letter #26-4 (revised). |
| South Dakota | No wage tax | No wage tax | No wage tax | No wage tax | 16,020 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| Tennessee | No wage tax | No wage tax | No wage tax | No wage tax | 102,030 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| Texas | No wage tax | No wage tax | No wage tax | No wage tax | 420,910 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| Utah | None found | None found | None found | None found | 40,080 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Vermont | None found | None found | None found | None found | 8,680 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Virginia | None found | None found | None found | None found | 122,910 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Washington | No wage tax | No wage tax | No wage tax | No wage tax | 106,530 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
| West Virginia | None found | None found | None found | None found | 16,740 | No state deduction found in official sources as of October 6, 2026. The federal deductions are taken after adjusted gross income, so states that start from federal AGI do not pick them up automatically. |
| Wisconsin | None found | None found | None found | None found | 98,250 | Bills for a tips exemption (SB 36) and an overtime subtraction (AB 461) passed but were vetoed. Override votes failed in 2026. Wisconsin Legislature, AB 461. Wisconsin Legislature, SB 36. |
| Wyoming | No wage tax | No wage tax | No wage tax | No wage tax | 8,520 | No state income tax on wages, so tips and overtime are not taxed at the state level. |
Tipped jobs: BLS OEWS employment in 11 occupations on the IRS list: waiters and waitresses, bartenders, non-restaurant food servers, dining room attendants and bartender helpers, hosts, hairdressers and cosmetologists, barbers, manicurists, massage therapists, baggage porters and bellhops, and parking attendants. Cells BLS did not publish are left out of the state total.
Download the data (CSV)How many tipped workers still pay state tax on tips?
Big-population states with an income tax, such as California, New York, Illinois, Pennsylvania, Ohio and New Jersey, had no state deduction in official sources as of October 6, 2026. That is why most tipped workers still owe state tax on their tips even after the federal change.
What this means if you run a restaurant, salon or other tipped business
For a salon, put tip records, staffing arrangements and customer payments into one operating routine. Our salon staffing guide and booking and payment setup cover the systems and services that support those tasks.
The deduction belongs to your workers, not to the business. But you handle the paperwork, and your staff will ask you about it.
- Your W-2s change for 2026. Report cash tips your employees reported to you in box 12, code TP. Report qualified overtime in box 12, code TT. Put each tipped worker’s Treasury Tipped Occupation Code in the new box 14b. Ask your payroll provider now whether they track these.
- Only the extra half of overtime counts. Qualified overtime is the premium required by the federal Fair Labor Standards Act, the “half” in time-and-a-half. Overtime you pay because of state law or your own policy doesn’t count.
- Service charges are not tips. A mandatory 18% charge for large parties is wages, not a tip, and doesn’t qualify. If you want staff to benefit, think about how you word and collect it.
- Be straight with staff about state tax. In most states, tips and overtime are still taxed by the state. A server who expects a full refund may be disappointed. Point them to the table above.
If you pay tipped workers a cash wage below the minimum, check your state’s rules on our tip credit by state page and the 2027 minimum wage by state. Salon owners deciding between employees and booth renters can run the numbers with the booth rental vs. ownership calculator; booth renters are self-employed, and self-employment income has its own rules under the deduction. Starting out? See our guides to opening a hair salon or a food truck.
How we did this
- State status. We checked each state with an income tax against the enacted bill text on the legislature’s site and the revenue department’s forms, instructions or notices. Third-party trackers were used only to find leads. Where an official source says no, the table says “No.” Where we found nothing, it says “None found.” For Iowa, Montana, North Dakota and Oregon, 2025 is confirmed by state instructions; 2026 is marked “Expected” because those states start from federal taxable income but have not published 2026 forms.
- Federal rules. 26 U.S.C. 224 and 225 as added by P.L. 119-21, and the IRS list of tipped occupations in final regulations TD 10044 (26 CFR 1.224-1), effective June 12, 2026. Employer reporting: IRS 2026 General Instructions for Forms W-2 and W-3.
- Tipped workers. BLS Occupational Employment and Wage Statistics, May 2025, state employment (series OEUS[state]00000000000[SOC]01) for 11 occupations that appear in the IRS list. National totals use the OEUN series. 37 state cells were not published and are left out.
Caveats
- Not everyone in these occupations earns tips, and many tipped jobs (fast food, delivery, rideshare, casino) are left out of our 11-occupation count. Treat the worker numbers as a floor for the core tipped jobs, not a full count.
- OEWS counts wage and salary workers by where they work. It excludes self-employed workers such as most booth renters.
- Laws are changing fast. Several states may act in 2027 sessions. Local income taxes (for example in Ohio, Pennsylvania and Maryland) are not covered.
- This page is general information, not tax advice.
This page has no ads or affiliate links. Cite as: StartBusinessByState, “No Tax on Tips and Overtime by State,” updated October 6, 2026, https://startbusinessbystate.com/no-tax-on-tips-overtime-by-state/
Related research
- Tip credit by state.
- What the 2027 minimum wage increases cost small businesses.
- Salon industry statistics.
- Food truck industry statistics.
- Wages by state.
Your next step: set up salon staffing and payroll
FAQ
Which states don’t tax tips?
For 2025 returns, Arizona, Colorado, Idaho, Iowa, Montana, North Dakota, and Oregon allowed the federal tips deduction. Nine states have no tax on wage income at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For 2026, Michigan, Indiana and D.C. add the deduction, Georgia allows up to $1,750 of cash tips, and Colorado keeps it.
Which states don’t tax overtime?
For 2025, the same 7 states: Arizona, Colorado, Idaho, Iowa, Montana, North Dakota, and Oregon. For 2026, Colorado drops out, while Michigan, Indiana and D.C. join. Georgia allows up to $1,750 and Alabama up to $1,000 of qualified overtime.
Why do I still owe state tax on my tips?
The federal deductions come off after adjusted gross income. Most states start their income tax from federal AGI, so the deductions don’t carry over unless the state passes its own law.
How much of my tips can I deduct on my federal return?
Up to $25,000 of qualified tips a year, for 2025 through 2028. The deduction phases out above $150,000 of modified adjusted gross income ($300,000 for joint filers). Tips must be voluntary, and the job must be on the IRS list of tipped occupations.
What changes for employers in 2026?
On 2026 Forms W-2, employers report cash tips reported to them in box 12 with code TP, qualified overtime with code TT, and each tipped worker’s Treasury Tipped Occupation Code in new box 14b.
How often is this page updated?
We re-check state bills monthly while legislatures are in session and again each January, when states publish their tax forms.
Last updated October 6, 2026. State status checked October 6, 2026; BLS OEWS May 2025.