Does No Tax on Tips Apply to State Taxes?
The tips and overtime deductions are federal income tax deductions under IRC §§ 224 and 225. They do not, by themselves, reduce state income tax.
Will my state follow the federal rule?
It depends on your state. Some states start from federal AGI, but these deductions come after AGI on Schedule 1-A, so they generally don't flow through automatically. A few states have passed or proposed their own tip or overtime exemptions.
Unconfirmed on this site: which states have adopted their own versions. We haven't verified each state's law, so check your state revenue department's website for the current year.
What about states with no income tax?
If you live in a state with no wage income tax (for example Texas, Florida, Nevada, Washington, Tennessee, South Dakota, Wyoming, Alaska, New Hampshire), there's no state income tax on tips to begin with.
Does it change FICA withholding?
No. Social Security and Medicare taxes still apply.
Sources
- IRS Fact Sheet FS-2025-03: tax deductions for working Americans
- 26 U.S. Code § 224 – Qualified tips and § 225 – Qualified overtime compensation
- IRS FS-2026-13: overtime deduction Q&A
- Public Law 119-21 (congress.gov)
→ Estimate your deduction with the free calculator
More guides
- 7 Common Mistakes Claiming No Tax on Tips or Overtime
- How to Claim No Tax on Tips and Overtime on Your Return (Schedule 1-A)
- No Tax on Tips: Federal Rules Explained (2025–2028)
- No Tax on Overtime: How Much Will I Save? Real Examples
- No Tax on Tips & Overtime Phase-Out Explained (MAGI $150,000 / $300,000)
- What Counts as Qualified Overtime for the No Tax on Overtime Deduction
- No Tax on Tips for Self-Employed and Gig Workers
- Which Jobs Qualify for No Tax on Tips? Eligible Occupations
- W-2 Box 12 Codes TP and TT: Tips and Overtime Reporting