Which States Decoupled from the OBBBA Overtime Deduction (Updated April 2026)

The federal OBBBA overtime deduction is a federal tax break. Whether it also lowers your state income tax bill depends on a separate decision your state makes — and as of April 2026, only a handful of states have publicly committed one way or the other.

This page tracks the confirmed state positions as of April 19, 2026. It's updated as states move. If your state isn't on the confirmed list yet, the answer is almost always “your state is still deciding, plan on the federal benefit only” — but check with your state's Department of Revenue or your tax preparer before you file.

TL;DR

Four jurisdictions have decoupled fully — workers in these states pay state income tax on overtime the way they always did, even if they take the federal OBBBA deduction: Colorado, Illinois, Rhode Island, and Washington, DC.

One state conforms with an add-back — workers in this state can take the federal deduction but have to add the deducted amount back when computing state taxable income, which means the net state benefit is zero: New York.

One state conforms cleanly — workers in this state get both the federal and the state-level benefit on the same overtime: Michigan.

Nine states have no individual income tax at all, which makes the question moot at the state level: Alaska, Florida, Nevada, New Hampshire (wages), South Dakota, Tennessee, Texas, Washington, Wyoming.

The remaining ~36 states are in flux — most are working through their 2026 legislative sessions and won't settle the question until late spring at the earliest. If you're in one of those states, save your paystubs, take the federal deduction now, and watch your state DOR's guidance for any conformity announcement.

What “decoupling” actually means

When a federal tax law changes, every state that has its own income tax has to decide: do we automatically follow the federal change, or do we keep our state tax base the way it was before?

A state that conforms automatically inherits the federal change. A federal deduction reduces federal AGI, which flows through to state taxable income, which lowers your state tax bill by the same amount the deduction reduced federal AGI.

A state that decouples rejects the federal change for state purposes. The federal deduction still reduces your federal taxes, but for state taxable income, the state pretends the deduction never happened. Workers in decoupled states pay state income tax on the full amount of their overtime, including the qualifying premium that the federal government just stopped taxing.

A state that conforms with an add-back lets you take the federal deduction in your federal return — but then requires you to add it back when you file your state return, recomputing your state tax base as if the deduction never existed. Net effect at the state level is the same as decoupling.

Confirmed state positions — April 19, 2026

Sources for this table: Tax1099 OBBBA state conformity tracker, Tax Notes special report on OBBBA conformity, TaxProf Blog state-decoupling roundup.

Each row was last cross-checked against the cited source on the date shown. State conformity moves throughout the year — re-verify against your state DOR before relying on any specific treatment.

States with no income tax

These states have no individual income tax on wages, so the OBBBA conformity question doesn't affect what shows up on your paycheck:

If you live in any of these states, you get the full federal OBBBA benefit on qualified overtime with no state-level offset to worry about.

What “in flux” means for the rest of the country

The other 36 states haven't yet published a definitive position on OBBBA overtime conformity. That's not unusual — the bill passed in August 2025, retroactive to January 1, 2025, and most states only review their conformity status during regular legislative sessions or formal DOR guidance updates.

A few patterns to watch for in the states still deciding:

Rolling-conformity states. Some states automatically conform to the federal Internal Revenue Code as of a specific date. If that date is after the OBBBA's enactment, those states may already conform without having taken any specific action — the conformity happened automatically when the law passed. The risk: their state legislature can still come back and decouple later in the year, retroactively.

Static-conformity states. Other states conform to the IRC as of a fixed historical date and have to pass legislation each year (or every few years) to update that date. Those states default to non-conformity until they update.

Selective-conformity states. A handful of states conform to most of the federal code but historically decouple from federal credits and deductions on a case-by-case basis. These are the states most likely to actively decouple from OBBBA.

For workers, the practical answer is the same in all three cases: assume your state will tax your overtime normally, take the federal deduction now (it saves federal income tax regardless), and watch your state DOR's bulletins for an announcement.

If your state announces conformity later in the year — or even retroactively — you can amend your state return to claim the additional benefit.

What to do if your state isn't on the confirmed list

Three steps:

Take the federal deduction now. The federal OBBBA deduction stands on its own. Take it on Schedule 1-A of your federal return regardless of what your state ends up doing.

File your state return based on your state's current published guidance. If your state hasn't issued OBBBA-specific guidance, your state return follows the same logic it always did — the state tax base is what your state's tax form asks for, and most state forms either start from federal AGI (in which case the federal deduction flows through automatically, unless the state has decoupled) or compute state taxable income from scratch.

Watch for guidance updates. State DORs typically issue technical bulletins or FAQ pages when they take a position on a federal change. The Tax1099 tracker linked above is updated frequently; the Tax Foundation also maintains a state conformity tracker. We'll keep this page current.

State-by-state edge cases worth knowing

A few states need their own paragraph because the OBBBA interaction has wrinkles beyond the basic conformity question.

California. California is the highest-stakes state for OBBBA overtime questions, because California's daily-overtime rule (8 hours/day, 12 hours/day for double-time) means a lot of California workers earn what their paystub calls “overtime” but is actually triggered by California law, not by FLSA. State daily overtime that is not also FLSA weekly overtime is not “qualified overtime” under federal OBBBA, regardless of what California decides about state-level conformity. So a California nurse who works a 13-hour shift in a 36-hour week may have “OT” on her paystub that doesn't qualify for either the federal or the state OBBBA deduction. See the pillar guide for the FLSA-only decision tree and the California paycheck breakdown for state-specific math.

New York. New York conforms federally but adds the deduction back on Form IT-225 using the new state-specific codes published in early 2026. The result: federal benefit yes, state benefit no. A New York warehouse worker who saves $300 in federal income tax on peak-season overtime saves zero in state income tax on the same overtime.

Colorado. Colorado decoupled from the OBBBA overtime deduction effective tax year 2026, but kept the OBBBA tips deduction. Colorado tipped workers may have a federal-and-state tips benefit while Colorado overtime-earning workers have a federal-only overtime benefit. Two different answers in the same state.

Pennsylvania, Indiana, Ohio, and other local-tax states. These states have local income taxes layered on top of state income tax. Even if the state itself conforms, the city/county piggyback rules generally follow the state base, so the local-tax answer follows the state-tax answer. Pittsburgh, Philadelphia, NYC, Detroit, Cincinnati, Cleveland, and Indianapolis all have local income taxes that interact with the state OBBBA decision.

Connecticut, Massachusetts, Maryland, New Jersey, Minnesota. Selective-conformity states. All five are running through their 2026 legislative sessions on OBBBA conformity right now. Watch for their decisions in the next few months. Until then, plan on federal-only.

How we keep this page current

The OBBBA conformity landscape is moving every month. We're treating this page as a living document. Specifically:

The state table at the top is updated whenever a state DOR or state legislature issues a new position. Each row carries a “last verified” date so you can see how stale the row is.

The full review cycle is monthly — every fourth week we re-check each row against the cited source and against the state DOR's guidance page directly.

Major OBBBA developments (a new state decoupling, a federal IRS notice, a Treasury regulation) trigger an out-of-cycle update.

If you spot something we missed, or your state's DOR has issued guidance we haven't reflected, let us know.

Compare to your last paycheck — with your state's OBBBA position baked in

The OBBBA decision is one of several state-specific factors that determine your real take-home pay. State income tax brackets and rates, state-specific FICA equivalents (like California's SDI), local income taxes, and pre-tax deduction interactions all stack on top.

Take Home IQ saves your paychecks pay period over pay period and shows you what changed — including the OBBBA deduction line for your state, whether your state lets you keep it, and how your take-home moved compared to the same shift last month.

Compare to your last paycheck — with your state's OBBBA position and all the other state-specific rules baked in.

If you're new to OBBBA, start with the no tax on overtime explained guide for the federal mechanics. If you're a warehouse or fulfillment worker, the warehouse worker guide walks through peak-season math and Box 14 with worked examples.

Last verified against state DOR sources and federal OBBBA guidance: April 19, 2026. State conformity status moves throughout the year. Always re-check your specific state's published guidance immediately before filing.