As Washington, D.C. scrambles to plug a looming budget hole, a new emergency tax bill is cutting off some of the headline federal tax breaks for tips, overtime and seniors — and it’s a warning sign for workers and retirees across the country who assume those 2025 perks automatically apply in their state.
Dateline – November 16, 2025
Americans have spent months hearing about the “no tax on tips” deduction, overtime tax relief and a new $6,000 “senior bonus” deduction included in President Donald Trump’s 2025 One Big Beautiful Bill (OBBB) tax law. On paper, those perks look like a windfall for service workers, people who rely on overtime and retirees living on fixed incomes. [1]
But new moves in the nation’s capital show just how fragile those benefits can be once state and local politics — and budget math — get involved.
On November 16, 2025, USA Today highlighted that an emergency bill passed in Washington, D.C. has turned off several of those federal tax breaks at the local level, underscoring why taxpayers can’t assume their state will mirror federal policy. [2]
At the same time, Kiplinger and Yahoo Finance reporting this week detail how D.C. is bracing for more than $1 billion in lost revenue over the next several years, tied to an expected loss of tens of thousands of federal jobs — pressure that pushed city leaders to decouple from parts of the new federal tax law. [3]
Here’s what changed, why it matters for tips, overtime and senior deductions, and how to protect yourself before you file your 2025 tax return in 2026.
1. What the new federal tax breaks actually promise
The One Big Beautiful Bill, also branded the Working Families Tax Cut, became law on July 4, 2025 and rewired large parts of the tax code. [4] Among the biggest headlines for regular households:
- “No tax on tips” deduction
- Lets qualifying workers in tipped occupations deduct up to $25,000 of eligible tips from taxable income.
- Phases out starting around $150,000 of income for single filers and $300,000 for married couples filing jointly. [5]
- “No tax on overtime” deduction
- New $6,000 “senior bonus” deduction
- An extra $6,000 deduction for taxpayers age 65 or older, on top of the existing senior add‑on to the standard deduction.
- A married couple where both spouses are 65+ can typically claim $12,000 in extra deductions under this provision.
- The new deduction is scheduled to apply for tax years 2025 through 2028, with income-based phaseouts. [8]
Together, these provisions were sold as a way to boost take-home pay for service workers and overtime earners, and to give seniors more breathing room as inflation and healthcare costs eat into budgets.
At the federal level, these breaks are still intact as of mid‑November 2025. But whether they also reduce your state or local tax bill is another story.
2. D.C.’s emergency tax bill: turning off “no tax on tips” and the senior bonus locally
Washington, D.C. has just become the most high-profile example of a jurisdiction saying “no thanks” to some of the new federal tax goodies.
According to reporting from Kiplinger, the D.C. City Council passed emergency legislation this month to decouple the District’s income tax rules from several key pieces of the 2025 Trump tax law. [9]
The emergency bill removes these breaks from D.C. local income taxes:
- The $6,000 senior bonus deduction for older adults.
- The “no tax on tips” deduction and the overtime pay deduction.
- Immediate expensing of research and development (R&D) costs.
- Special bonus depreciation allowances for businesses. [10]
If you live in D.C., this means:
- You can still claim these deductions on your federal return (assuming you qualify).
- But you won’t get the same tax break on your District income tax return, at least under the emergency and temporary law now in place.
Why did D.C. do it?
City officials are staring at significant fiscal stress:
- A record-breaking federal government shutdown put huge strain on the local economy. [11]
- The D.C. Fiscal Policy Institute estimates the District could lose up to $1 billion in revenue over four years, largely because it expects around 40,000 federal government–related jobs to disappear as agencies trim and restructure. [12]
To avoid deeper cuts to services, the Council chose to preserve local revenue by not adopting the most expensive pieces of the federal bill for D.C. taxes.
Kiplinger reports that by excluding those provisions, D.C. expects to:
- Save about $95 million in fiscal year 2025, and
- Roughly $567 million through fiscal year 2029. [13]
Those savings aren’t just sitting in a rainy‑day fund. The plan is to redirect the money to:
- Create a new local Child Tax Credit of $1,000 per child, and
- Increase the city’s Earned Income Tax Credit match from 85% to 100% of the federal credit, boosting refunds for low‑income workers. [14]
Anti-poverty advocates point out that roughly one in seven children in D.C. faces food insecurity, and the city’s child poverty rate for kids 6–17 ranks among the worst in the nation — strengthening the argument for targeting limited dollars to families in need rather than across‑the‑board breaks on tips and overtime. [15]
How long does the D.C. emergency law last?
The D.C. bill is structured in two phases: [16]
- An emergency amendment that lasts 90 days and didn’t need voter approval.
- A temporary amendment that extends the changes for an additional 225 days.
After that, permanent legislation will have to be debated and passed through the normal process — meaning this fight over how much tax relief D.C. residents should get is far from over.
3. State tax conformity 101: why your state may say “not in our house”
The D.C. drama is part of a much bigger story: state tax conformity.
States have three broad options when a big federal tax bill passes: [17]
- Rolling conformity – State law automatically updates to mirror current federal rules.
- Static conformity – Legislators periodically decide which version of the Internal Revenue Code to follow, based on a fixed date.
- Selective conformity – States pick and choose which sections of federal tax law to adopt.
Historically, D.C. followed federal law on a rolling basis, but the new emergency law is a break from that tradition — at least for certain OBBB provisions. [18]
Other states are making similar moves, just with less drama:
- New York has effectively rejected the “no tax on tips” and overtime deductions for state income taxes by sticking to an earlier conformity date, meaning those new federal breaks simply don’t exist in the state code. [19]
- Colorado passed a law even before OBBB was signed that keeps all overtime pay subject to state income tax, so the federal overtime deduction doesn’t change Colorado state tax bills. [20]
On the flip side, some states are leaning in:
- At least four states — Iowa, Montana, North Dakota and Oregon — are expected to adopt most of the new individual tax provisions for 2025, including the high‑profile deductions for tips, overtime and seniors. [21]
And some states are opting out of major portions of the federal law altogether:
- California, Connecticut, Hawaii and Massachusetts are listed among the states that will not conform to key OBBB provisions for 2025. [22]
- Georgia, Maryland and South Carolina are waiting until their 2026 legislative sessions to decide how closely to follow the new federal rules. [23]
On the corporate side, states like Michigan, Rhode Island and Illinois have already decoupled from generous business tax breaks such as 100% bonus depreciation and enhanced R&D expensing to protect their budgets from a projected $38.2 billion collective revenue hit if every state fully conformed. [24]
The big takeaway: The tax break you saw in a federal headline may vanish the second you cross a state border.
4. “Nation’s capital expected to lose a ton of money”: the fiscal backdrop
It’s not just abstract “budget strain” driving these choices.
A Yahoo Finance personal finance piece this week, echoing the DCFPI analysis, notes that Washington, D.C. is expected to lose more than $1 billion in revenue over the next three years as federal jobs and related economic activity disappear — a hit the city can’t easily absorb. [25]
Layer on top of that:
- The lingering impact of the record federal government shutdown, and
- Broader economic uncertainty tied to tariffs, slower growth and higher borrowing costs,
and it becomes clearer why budget officials in D.C. and other capitals are prioritizing revenue stability over new tax giveaways, even when those giveaways poll well.
For taxpayers, that translates into a messy patchwork:
- Generous federal deductions that may not exist in your state.
- New local credits and targeted programs — like D.C.’s child tax credit and EITC boost — that benefit some residents while others lose the very breaks they had been counting on. [26]
5. What this means for your 2025 tax return if you rely on tips, overtime or senior breaks
If you’re excited about the new federal rules, you’re not wrong to be — but you need to get very specific about how they apply where you live.
Here’s how to think about it:
A. Separate federal and state/local benefits in your mind
- Federal tax breaks (like the “no tax on tips” and the senior deduction) are determined by federal law and IRS guidance.
- State and local tax breaks depend on whether your state (or D.C.) chooses to conform to those federal changes, and how.
It is entirely possible that in April 2026 you will:
- See a smaller federal tax bill because of these new deductions, but
- See no change — or even a higher bill — on your state return if your state decoupled or never adopted the provisions in the first place. [27]
B. Key questions to answer before you file
Between now and tax time, consider this your 2025 tax checklist:
- Check your state’s conformity status.
- Look up your state department of revenue or tax agency and search for terms like “One Big Beautiful Bill”, “no tax on tips”, “overtime deduction” or “senior deduction.”
- Compare what you find with IRS and TurboTax summaries of the federal law so you understand the differences. [28]
- Know which deductions you personally qualify for.
- Do you work in a tipped occupation recognized by the IRS?
- Do you log significant overtime hours?
- Will you be 65 or older at any point during the 2025 tax year?
- Run the numbers against the income phase‑out thresholds so you’re not counting on a deduction that will be partially or fully phased out for your bracket. [29]
- Keep meticulous records of tips and overtime.
- For federal purposes, you’ll need good documentation (e.g., W‑2s, 1099s, employer statements, your own tip logs) to support any “no tax” deductions you claim.
- Even if your state doesn’t follow the federal rules, those records can help your preparer run what‑if scenariosand optimize other parts of your return.
- Watch for new IRS forms and instructions.
- The IRS is rolling out updated Form 1040 instructions and a new way to report these deductions (often referenced as additional schedules for above‑the‑line deductions). [30]
- If you use software, expect specific questions about tips, overtime and senior status during the interview process.
- Consider adjusting withholding or estimated payments.
- If you’re in a state like Colorado or New York, where the overtime and tip deductions don’t apply to state taxes, you might end up owing more than you expected on your state return — even as your federal bill goes down. [31]
- Talk to your payroll department or a tax pro about tweaking your withholding so you’re not surprised in April.
6. Seniors and D.C. residents: who’s most exposed right now?
While anyone who earns tips or overtime should pay attention, two groups face especially immediate consequences from this month’s news:
Seniors living in D.C.
- The $6,000 senior deduction can meaningfully lower taxable income for retirees on fixed incomes. [32]
- D.C.’s emergency decoupling means eligible seniors will not see that extra break on their local return, even though they may still get it at the federal level. [33]
For someone with modest retirement income, that could mean a noticeably higher D.C. tax bill than they expectedwhen they first heard about OBBB over the summer.
Service workers and overtime earners in decoupled states
In states that have already opted out of the “no tax on tips” and overtime provisions — or never opted in — workers could feel a similar pinch:
- Restaurant servers, bartenders, hotel staff, ride‑share drivers and other tipped workers may benefit federally but still owe full state income tax on their tips. [34]
- Nurses, warehouse workers, manufacturing employees and others who rely on overtime may find that the extra hours help more on their federal return than on their state one.
In high‑tax states, that state‑level difference can be hundreds of dollars for families with substantial tips or overtime.
7. What to watch next
The story isn’t finished. Over the coming months, keep an eye on:
- D.C.’s move from “temporary” to permanent law
If the emergency and temporary provisions are extended or made permanent, the District could become a template for other cash‑strapped cities and states that want to redirect federal-style breaks into targeted credits instead. - State legislative sessions in early 2026
States like Georgia, Maryland and South Carolina are scheduled to take up tax conformity questions then. Their decisions will determine whether millions more taxpayers get full, partial or no state‑level benefit from tips, overtime and senior deductions. [35] - Further IRS guidance
Expect more technical details on how to substantiate tips and overtime, what counts as a qualifying job, and how the new senior deduction interacts with existing standard deduction rules.
Bottom line
Today’s developments — capped by D.C.’s emergency bill and the new coverage from USA Today, Kiplinger and Yahoo Finance — are a clear reminder:
Tax law is now a two‑step process: first federal, then state.
If you earn tips, count on overtime, or are 65+, you can’t just skim the headlines about the One Big Beautiful Bill and assume you know your 2025 tax bill.
Take the time now, before filing season opens in early 2026, to:
- Learn what your state is doing,
- Map out which deductions you realistically get, and
- Adjust your budget and withholding so the new rules help you — instead of ambushing you — when you finally sit down to file.
This article is for general informational purposes only and is not individualized tax, legal or financial advice. Always consult a qualified tax professional about your specific situation.
References
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