New tax breaks on tips, overtime - What to know

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Published  April 13, 2026 8:41am MST
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JOSEPH /OREGON STATE, USA_ American senior couple eating american fast food bruger in local restaurant in tnterprise ,Oregon states, USA 5 June 2011 (PHOTO BY FRANCIS JOSEPH DEAN/DEAN PICTURES) | Location: ENTERPRISE, OREGON STATE, UNITED STATES OF A …

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The Brief

    • A new federal law allows millions of Americans to claim tax breaks on tips and overtime, but it is up to each state to decide to match the federal change.
    • Only six states; Idaho, Iowa, Montana, North Dakota and Oregon, have opted to use the federal law to give tax breaks on tips, overtime and auto loans on new vehicles. Colorado is only allowing it for tips and auto loan deductions.
    • Other states have not matched the federal status, so workers will still have to pay state taxes on tips and overtime.

The Trump administration passed a new law that will allow millions of Americans to claim federal income tax breaks for tips and overtime for the first time. However, it is up to each state to decide to match the federal tax changes. Many states have already decided not to do so. 

Big picture view:

There are eight states that do not have to file state income taxes, so the law would not apply to them. The remaining states have individual state income tax rates that can vary based on income earned throughout the year. 

Which states are offering the tax breaks?

What we know:

Only six states are using the new federal law offering tax breaks on tips, overtime or new vehicle auto loans. Filers in Idaho, Iowa, Montana, North Dakota and Oregon are able to use all three new tax breaks. Meanwhile, people in Colorado are only able to use the tax breaks for tips and auto loan deductions. Alabama is only allowing the tax break on auto loans at this point. 

Other states have not changed to the new federal status, so people who receive tax deductions on tips and overtime will still have to pay state taxes on those earnings. 

Shelby Dooley, at left and her dad Bruce Tenenbaum order from waitress Gianna Veliz at Ruby's diner in the Twenty Ninth Street Mall on Friday June 6, 2008.(Photo by Paul Aiken/Digital First Media/Boulder Daily Camera via Getty Images)

The backstory:

President Donald Trump signed the tax and spending cut bill into law in July. Part of the bill signed into law was new tax deductions on tip, overtime and auto loans. Additionally, there was a $6,000 deduction for older adults who do not earn more than $75,000 a year. 

What's next:

The deadline to file 2025 federal income tax returns and most state returns is on Wednesday.

The Source: This story was written with information provided by the Associated Press. This story was reported from Orlando. 


 

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