Which states tax tips and overtime in 2026

Tips aren’t taxed in the 9 states with no tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Among the states that do tax wages, Arizona, Colorado, Hawaii, Idaho, Indiana, Iowa, Michigan, Montana, New York, North Dakota, and Oregon let you subtract the tips you deduct on your federal return. Georgia has its own exclusion of up to $1,750 of tips. Every other state taxes tips, or hasn’t confirmed its 2026 rules yet.

For 2026, Arizona, Idaho, Indiana, Iowa, Michigan, Montana, North Dakota, and Oregon follow both federal deductions. Colorado, Hawaii, and New York follow it for tips only. Alabama and Georgia don’t follow it but have their own, smaller break. 28 states don’t follow it and tax tips and overtime in full.

Find your state in the table above for the details, the official source, and the date we checked it, or open your state’s page for its rates and an example.

Each made a separate choice. Colorado starts from federal taxable income, so both deductions would carry over, but a 2025 law (HB25-1296) adds the overtime deduction back from 2026. Hawaii’s Act 35 (2026) adopted the federal tips provision (§224) but not the overtime one (§225). New York’s FY 2027 budget created a state exemption for up to $25,000 of tips only.

The federal tips and overtime deductions come after adjusted gross income (AGI): they lower federal taxable income, not AGI. Most states start their own calculation from federal AGI, so the deductions don’t reach the state return unless the state passes its own subtraction.

States that start from federal taxable income, such as Iowa, Montana, and North Dakota, pick the deductions up automatically unless they add them back, as Colorado does for overtime. That’s why we mark several states as not following the deduction even without an official statement: they start from federal AGI and enacted no state deduction in 2026.

It depends on both states. Usually your home state taxes all your income and the state where you work taxes what you earn there, and each applies its own rules to the income it taxes. Many states give a credit for tax paid to the other state, and some neighboring states have agreements so you pay only one of them.

The rules for nonresidents can also differ from those for residents. Check with the tax agency of each state before you file.

Yes. The deductions lower only income tax. Social Security (6.2%, up to the yearly wage base) and Medicare (1.45%) still apply to all your tips and overtime, and your employer keeps withholding them.

In states that follow the federal deduction, you claim it on your state return, either automatically because the return starts from a federal figure that already includes it, or on a subtraction line. In Georgia and Alabama, you claim the state’s own break on the state return. Use your state’s 2026 forms and instructions, which come out around January 2027, or ask a tax professional.

Every row shows the date we last checked it against the official source. We review all 50 states and DC each January, when legislatures meet and the new state forms come out, and update a state sooner when its law changes. Rules last checked October 29, 2026.