State-by-State Guide: How the OBBBA Tip Tax Exemption Interacts with State Taxes
The OBBBA eliminates federal income tax on tips for eligible workers — but 41 states still have their own income taxes. Your total tip tax savings depends heavily on which state you work in. This guide breaks down every state's rules, rates, and real-dollar impact.
How the Federal Exemption Works (And Why State Taxes Still Matter)
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025 and effective for tax years 2025–2028, exempts qualifying tip income from federal income tax. If you're a tipped worker earning under $160,000 per year in a qualifying occupation, your tips are not counted as taxable income on your federal return.
But here's the critical nuance: state income taxes are separate. The federal government cannot force states to conform to federal tax law changes. Each state sets its own rules. As of 2026, only a handful of states have passed their own legislation exempting tips from state income tax. In most states, you still owe state income tax on every dollar of tip income — even though you owe zero federal income tax on the same amount.
The result: your total savings from the OBBBA tip exemption depends heavily on where you work. A server in Texas (no state income tax) saves 22% on every tip dollar at the federal level — period. A server in California (13.3% top rate) saves the same 22% federally but still owes up to 9.3% to the state on those same tips.
Use our No Tax on Tips Calculator to enter your state and see the combined federal + state picture for your exact income.
The 9 No-Income-Tax States: Maximum Tip Tax Savings
Nine states have no state personal income tax at all — meaning tipped workers in these states benefit from the OBBBA exemption in full. Every dollar of tip income is completely free of both federal and state income tax (FICA taxes still apply).
Zero-Tax States — Full Federal Savings Apply
Example: Texas Restaurant Server
Low-Tax States (Under 5%): Strong Savings, Small State Bite
States with income tax rates below 5% leave most of the OBBBA benefit intact. The federal exemption does the heavy lifting; the state tax is a modest reduction to the total gain.
| State | Top Rate | Notes for Tipped Workers | State Conformity |
|---|---|---|---|
| Indiana | 3.05% | Flat rate on all income. Tips fully subject to state tax. | No |
| North Dakota | 2.5% | Very low flat rate. Minimal state impact. | No |
| Pennsylvania | 3.07% | Flat rate. Philadelphia adds local wage tax (~3.75%). | No |
| Arizona | 2.5% | Flat rate since 2023 reform. Tips taxed at state level. | No |
| Ohio | 3.5% | Graduated rates. Most tipped workers in lowest brackets. | No |
| Michigan | 4.25% | Flat rate. Tips fully taxable at state level. | No |
| Utah | 4.55% | Flat rate. Tips subject to state income tax. | No |
Example: Indiana Server — Low State Tax Impact
Mid-Tax States (5–7%): Noticeable State Tax Offset
States with income tax rates between 5% and 7% significantly reduce the total benefit of the OBBBA tip exemption — but workers still come out well ahead compared to the pre-OBBBA baseline.
| State | Effective Rate (Tips) | Notes | State Conformity |
|---|---|---|---|
| Georgia | 5.49% | Flat rate since 2024 reform. Hospitality is major employer. | No |
| North Carolina | 4.5% | Flat rate, declining annually. Tips fully taxable. | No |
| Colorado | 4.4% | Flat rate. Denver restaurant scene large tipped workforce. | No |
| Illinois | 4.95% | Flat rate. Chicago is a major tipped-worker city. | No |
| Virginia | 5.75% | Graduated; top rate 5.75%. DC metro area tipped workers. | No |
| Missouri | 4.95% | Graduated rates capped at 4.95%. | No |
| Louisiana | 3.0% | Flat 3% since 2025 reform. New Orleans hospitality hub. | No |
| Wisconsin | 5.3% | Graduated rates. Tips taxable at state level. | No |
| New Mexico | 5.9% | Graduated; top rate 5.9% on income over $210K. | No |
| Iowa | 5.7% | Flat rate since 2025 reform. | No |
High-Tax States (7%+): Federal Savings Partially Offset
High-income-tax states substantially reduce the net benefit of the OBBBA tip exemption. Workers in California, New York, and similar states still save money — the federal exemption is significant — but the state tax on tips offsets roughly a third to half of the federal savings.
| State | Top Rate | Effective Rate for Tipped Workers | State Conformity |
|---|---|---|---|
| California | 13.3% | 7–9.3% for most tipped workers ($40K–$80K income) | No |
| New York | 10.9% | 6.85–9.65% for NYC workers (city tax adds 3.876%) | No |
| New Jersey | 10.75% | 5.525–6.37% for most tipped income levels | No |
| Oregon | 9.9% | 8.75–9.9% for income over $125K; 8.75% for most | No |
| Minnesota | 9.85% | 6.8–9.85% graduated; most tipped workers in 6.8–7.85% | No |
| Hawaii | 11.0% | 7.2–8.25% effective for most tipped workers | No |
| Vermont | 8.75% | 6.6–8.75% graduated rates | No |
| Maryland | 5.75% | Plus local income tax 2.25–3.2% (county-level) | No |
| Massachusetts | 5.0% | Flat 5% (plus 4% surtax over $1M — rarely applies) | No |
Example: California Server — High-Tax State Reality
Even with California's high state tax, the net gain is still $4,445/year — nearly $370/month in extra take-home pay.
Example: New York City Bartender — City + State Tax
Which States Have Conformed to OBBBA? (State-Level Tip Exemptions)
A growing number of states are considering or have passed their own tip income exemptions that mirror the federal OBBBA. If your state conforms, you could owe zero state income tax on tips — on top of zero federal income tax — maximizing your savings.
As of early 2026, the legislative landscape is moving quickly. Here's what we know:
States With Tip Tax Exemption Legislation
- Georgia — HB 112 passed, exempts up to $25,000 in tips for qualifying workers (effective 2026)
- Louisiana — HB 92 passed, mirrors federal exemption for state purposes (effective 2026)
- West Virginia — SB 486 passed, full state tip exemption through 2028
- Mississippi — HB 1041 passed, exempts tips for qualifying occupations (effective 2026)
* Verify current status with your state's department of revenue — legislation can change rapidly.
States With Bills Under Consideration
- Florida — No income tax already; no action needed
- Texas — No income tax already; state legislators have introduced constitutional provisions
- Arizona — HB 2418 introduced, in committee as of Q1 2026
- Ohio — SB 72 introduced, mirrors federal exemption
- North Carolina — Bills introduced in both chambers
High-Tax States Not Conforming
- California — Governor has signaled opposition; no legislation advancing
- New York — No conformity bill introduced as of March 2026
- New Jersey — No conformity legislation
- Oregon — No conformity legislation
- Minnesota — No conformity legislation
Important: This legislative information changes frequently. Check your state's official department of revenue website for the latest rules before filing. Use our OBBBA FAQ for up-to-date guidance.
Full 50-State Tip Tax Comparison Table
The table below shows each state's income tax rate and the estimated net benefit for a worker earning $25,000 in annual tip income in the 22% federal bracket.
| State | State Tax Rate | Federal Savings on $25K Tips | State Tax Still Owed | Net Gain |
|---|---|---|---|---|
| Alaska | 0% | $5,500 | $0 | $5,500 |
| Florida | 0% | $5,500 | $0 | $5,500 |
| Nevada | 0% | $5,500 | $0 | $5,500 |
| New Hampshire | 0% | $5,500 | $0 | $5,500 |
| South Dakota | 0% | $5,500 | $0 | $5,500 |
| Tennessee | 0% | $5,500 | $0 | $5,500 |
| Texas | 0% | $5,500 | $0 | $5,500 |
| Washington | 0% | $5,500 | $0 | $5,500 |
| Wyoming | 0% | $5,500 | $0 | $5,500 |
| North Dakota | 2.5% | $5,500 | $625 | $4,875 |
| Arizona | 2.5% | $5,500 | $625 | $4,875 |
| Indiana | 3.05% | $5,500 | $763 | $4,737 |
| Pennsylvania | 3.07% | $5,500 | $768 | $4,732 |
| Louisiana | 3.0% | $5,500 | $750 | $4,750 |
| Michigan | 4.05% | $5,500 | $1,013 | $4,487 |
| Colorado | 4.4% | $5,500 | $1,100 | $4,400 |
| Utah | 4.55% | $5,500 | $1,138 | $4,362 |
| Ohio | 3.5% | $5,500 | $875 | $4,625 |
| Illinois | 4.95% | $5,500 | $1,238 | $4,262 |
| Missouri | 4.95% | $5,500 | $1,238 | $4,262 |
| North Carolina | 4.5% | $5,500 | $1,125 | $4,375 |
| Alabama | 5.0% | $5,500 | $1,250 | $4,250 |
| Georgia | 5.49% | $5,500 | $1,373 | $4,127 |
| Kentucky | 4.0% | $5,500 | $1,000 | $4,500 |
| Massachusetts | 5.0% | $5,500 | $1,250 | $4,250 |
| Virginia | 5.75% | $5,500 | $1,438 | $4,062 |
| Wisconsin | 5.3% | $5,500 | $1,325 | $4,175 |
| Iowa | 5.7% | $5,500 | $1,425 | $4,075 |
| West Virginia | 5.12% | $5,500 | $1,280 | $4,220 |
| Arkansas | 4.4% | $5,500 | $1,100 | $4,400 |
| Mississippi | 5.0% | $5,500 | $1,250 | $4,250 |
| Montana | 5.9% | $5,500 | $1,475 | $4,025 |
| New Mexico | 5.9% | $5,500 | $1,475 | $4,025 |
| Rhode Island | 5.99% | $5,500 | $1,498 | $4,002 |
| Idaho | 5.8% | $5,500 | $1,450 | $4,050 |
| Kansas | 5.7% | $5,500 | $1,425 | $4,075 |
| Nebraska | 5.84% | $5,500 | $1,460 | $4,040 |
| South Carolina | 6.4% | $5,500 | $1,600 | $3,900 |
| Delaware | 6.6% | $5,500 | $1,650 | $3,850 |
| Connecticut | 6.99% | $5,500 | $1,748 | $3,752 |
| Maine | 7.15% | $5,500 | $1,788 | $3,712 |
| Vermont | 8.75% | $5,500 | $2,188 | $3,312 |
| Minnesota | 9.85% | $5,500 | $2,463 | $3,037 |
| Oregon | 9.9% | $5,500 | $2,475 | $3,025 |
| New Jersey | 6.37% | $5,500 | $1,593 | $3,907 |
| Maryland | 5.75%+ | $5,500 | $2,000+ | $3,500 |
| Hawaii | 11.0% | $5,500 | $2,063 | $3,437 |
| New York | 10.9% | $5,500 | $2,625+ | $2,875 |
| California | 13.3% | $5,500 | $2,325 | $3,175 |
* Assumes $25,000 in annual tip income, single filer, 22% federal bracket. State tax estimated at mid-range effective rate for a typical tipped worker income level. NYC workers pay additional city tax of 3.876%. Local taxes not included except NYC. Conforming states (GA, LA, WV, MS) shown without state tax reduction for simplicity — consult your state's actual legislation for eligibility rules.
Calculate Your Exact State + Federal Tip Tax Savings
The table above gives a general picture, but your actual savings depend on your specific income, filing status, and total tip earnings. Our calculator handles the full picture:
- Exact federal tax savings based on your marginal bracket
- FICA taxes still owed on tips (Social Security + Medicare)
- State income tax still owed (with state conformity toggle)
- Year-over-year comparison: before and after OBBBA
Get Your Personalized State + Federal Calculation
Enter your state, hourly wage, and tip earnings to see your exact annual savings — federal, state, and net combined.
Open Tips Calculator Overtime CalculatorFor occupation-specific pre-filled calculators, visit our occupation pages: restaurant servers, bartenders, hair stylists, delivery drivers, and more.
Frequently Asked Questions: Tip Tax by State
Do I still have to pay state income tax on my tips after OBBBA?
In most states, yes. The OBBBA only changes federal tax law. Unless your state has passed its own conforming legislation, you still owe state income tax on tip income. As of early 2026, Georgia, Louisiana, West Virginia, and Mississippi have passed state-level tip exemptions. Check your state's department of revenue for current rules.
I work in New York City — do I pay both city and state tax on tips?
Yes. New York City residents pay both New York State income tax (up to 10.9%) and NYC city income tax (up to 3.876%) on tip income — since neither the state nor the city has conformed to OBBBA. Your federal savings are still real and significant, but the combined state + city tax on tips can be substantial. A bartender earning $40,000 in tips still saves ~$8,800 federally, but owes roughly $4,300 in combined NY state and city tax on those tips.
Which state is best for tipped workers under OBBBA?
The nine no-income-tax states (Texas, Florida, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee, New Hampshire) offer the maximum benefit — zero federal and zero state income tax on tips. Among high-tip-volume states, Nevada (Las Vegas) and Florida (tourism) stand out. If you're considering relocating, Texas and Florida combine no income tax with major hospitality markets and large tipped workforces.
Will my state conform to OBBBA in the future?
The trend is moving toward conformity, especially in Republican-controlled legislatures. As of early 2026, several states are actively moving bills through their legislatures. Watch your state legislature's website or consult a local tax professional. If your state does conform mid-year, it typically applies to the full tax year — meaning you might get a refund on state taxes withheld on tips earlier in the year.
Does the state tax exemption work the same way as the federal exemption?
Not always — each state that has conformed writes its own rules. Some states cap the exemption (e.g., Georgia caps at $25,000 in tips), while others mirror the federal $160,000 income limit exactly. Others may apply different qualifying occupation lists. Check your specific state's legislation rather than assuming state rules match federal rules. Our OBBBA FAQ page tracks major state differences.
Ready to Calculate Your State-Specific Savings?
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