When Congress passed President Donald Trump’s One Big Beautiful Bill Act (OBBBA) this summer, the headlines almost wrote themselves: “No tax on tips,” “no tax on overtime,” “$6,000 bonus deduction for seniors.” For millions of workers and retirees, it sounded like simple, sweeping tax relief starting with their 2025 returns.
But as of Monday, November 17, 2025, a wave of new state‑level actions shows the reality is far messier. Washington, D.C. has already moved to block the new breaks in its local tax code, and a fresh report syndicated across Gannett outlets today confirms Illinois will also keep taxing tips and overtime, even as the federal government calls them partially tax‑free. [1]
Meanwhile, new coverage from Georgia and budget debates in states like Oregon and Michigan underline a clear trend: states are selectively rejecting some of Trump’s most popular individual tax perks to protect their own budgets. [2]
Below is a detailed look at what changed, who is affected, and what to watch if you earn tips, work overtime, or are 65+.
1. What Trump’s One Big Beautiful Bill Actually Promised
The One Big Beautiful Bill Act was signed into law on July 4, 2025, as the centerpiece of Trump’s second‑term economic agenda. It permanently extends the individual income tax rates enacted in 2017 and layers on a long list of new deductions and credits. [3]
For everyday taxpayers, three new provisions have dominated the headlines:
“No tax on tips” – a large new federal deduction
According to IRS guidance, OBBBA created a temporary deduction for “qualified tips” from 2025 through 2028: [4]
- Workers can deduct up to $25,000 of eligible tip income per year (subject to their actual net income in that line of work).
- The deduction phases out for higher earners – generally starting at $150,000 in modified adjusted gross income ($300,000 for joint filers).
- Only tips in occupations the IRS designates as “customarily and regularly receiving tips” qualify (think restaurant staff, rideshare drivers, salon workers and similar jobs).
- The deduction is available whether or not you itemize, but some professionals and employers in certain “specified service” businesses are excluded.
“No tax on overtime” – but only on the overtime premium
OBBBA also introduced a “No Tax on Overtime” deduction, also in effect for 2025–2028: [5]
- Individuals can deduct the overtime premium they earn under federal labor rules – essentially the “extra half” in “time‑and‑a‑half” pay for hours above 40 in a week.
- The deduction is capped at $12,500 for single filers and $25,000 for joint filers each year.
- It has the same $150,000 / $300,000 income phase‑out as the tip deduction.
- Like the tip break, it’s available to both itemizers and non‑itemizers, and requires new reporting from employers.
$6,000 “bonus” deduction for seniors
For seniors, the law added a new federal deduction of $6,000 per person (up to $12,000 for a married couple where both spouses are 65+), also from 2025 through 2028. This is on top of the existing extra standard deduction for age 65+. [6]
At the same time, OBBBA increased the basic standard deduction. For tax year 2025, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly, rising slightly again for 2026. [7]
Add in a new deduction for interest on certain car loans and other perks, and you can see why many workers and retirees believed they were heading into a golden era of tax breaks.
But there’s a catch: federal law is only half the story.
2. Why States Can Say “No” to Federal Tax Breaks
Most states start their income tax calculations with federal adjusted gross income or taxable income, but they’re not required to copy every federal rule. State legislatures routinely decide whether to “conform” to new federal provisions, and they can “decouple” from any piece they don’t like. [8]
That decision has become especially important because:
- OBBBA’s tax cuts are expensive, reducing federal revenue over the next decade. [9]
- The law simultaneously cuts federal spending on programs like Medicaid and SNAP, shifting financial pressure to state budgets. [10]
- Many states are already facing deficits or slower‑than‑expected revenue growth.
As the nonpartisan Tax Foundation notes, states are now “assessing the costs of OBBBA conformity” and weighing whether embracing all of these new deductions would blow holes in their budgets. [11]
That’s the backdrop for today’s biggest tax story: some states are starting to say “no” to Trump’s headline individual tax perks.
3. D.C.: The First Big Test Case
Washington, D.C., which often moves faster than many states on tax changes, has become the leading example.
Earlier this month, the D.C. Council passed an emergency tax bill that “decouples” parts of its tax code from OBBBA, specifically blocking several of the law’s new deductions from flowing through to local returns. [12]
According to coverage from Newsweek, Kiplinger and other outlets: [13]
- The Council rejected 13 of 84 new federal tax provisions, including
- the no tax on tips deduction,
- the no tax on overtime deduction,
- the extra $6,000 senior deduction, and
- several business‑related breaks.
- The move is part of a push to plug an expected budget shortfall of more than $1 billion over the next three years, tied to job losses, slower growth and higher demand for local services.
- D.C. officials say decoupling will save tens or hundreds of millions of dollars in revenue that would otherwise be lost if those new federal deductions were copied into the local tax code.
At the same time, D.C. lawmakers are redirecting some of that saved revenue to expand local anti‑poverty measures — including a full match of the federal Earned Income Tax Credit and a new $1,000‑per‑child local child tax credit. [14]
Crucially for residents:
D.C. workers and seniors can still claim the new OBBBA deductions on their federal returns — but those breaks will not lower their D.C. income tax bill.
The emergency law currently applies for 90 days, with a planned temporary extension of 225 days while a permanent fix is debated. [15]
4. Today’s Big Development: Illinois Will Keep Taxing Tips and Overtime
The newest twist came today via a Gannett report in the Peoria Journal Star and sister outlets under the headline “Some states axe Trump’s federal tax benefits. What is Illinois excluding?” [16]
Here’s what the article and its underlying USA TODAY reporting say:
- Illinois is one of several states choosing not to adopt OBBBA’s “no tax on tips” and “no tax on overtime” provisions.
- The state will treat those amounts as fully taxable for Illinois income tax purposes, even if a worker deducts them on their federal return.
- Tax experts expect Illinois to update Schedule M (Other Additions and Subtractions) to add a specific line where residents must “add back” any tip and overtime income they deducted federally. [17]
In plain language, if you’re an Illinois resident:
- You might see your federal taxable income drop thanks to OBBBA’s new deductions.
- But when you file your Illinois return, you will likely have to add those amounts back, so your state tax bill doesn’t go down on account of the new federal perks.
The article also notes that Illinois is not alone. Drawing on analysis from the Tax Foundation and Thomson Reuters, it describes a broader trend of states “decoupling” from the most generous parts of Trump’s tax package to avoid steep revenue losses in the middle of an uncertain economy. [18]
5. Colorado, New York, Maine and Beyond: A Growing Patchwork
Today’s Illinois story pulls together several other examples of states either rejecting or heavily limiting OBBBA’s new deductions: [19]
- Colorado
- Has rejected the federal overtime deduction.
- Plans to add a new line for “Excess federal deduction for overtime pay” — taxpayers will have to report what they deducted on their federal return and then add it back into Colorado income.
- New York
- Will continue taxing both tips and overtime as normal.
- State forms are being revised to include specific codes for an “add‑back of exempt tip income” and an “add‑back of exempt overtime pay.”
- Maine
- Has reportedly declined to adopt several popular OBBBA breaks, including the
- bonus senior deduction,
- tip and overtime deductions, and
- new car‑loan interest deduction.
- Has reportedly declined to adopt several popular OBBBA breaks, including the
The upshot: whether your tips, overtime pay or senior deduction are truly “tax‑free” now depends as much on your ZIP code as on federal law.
Other states are making different moves. On the retiree front, for example, Michigan’s Treasury issued a notice today explaining that a new state law (Public Act 24 of 2025) will let some seniors born after 1952 take both the state standard deduction and a Social Security deduction from 2026 to 2028, effectively enhancing their state‑level retirement relief. [20]
And in Oregon, lawmakers gathered in Salem today to discuss how to respond to a nearly $900 million hole in the state budget that Democrats link directly to federal cuts and tax changes under OBBBA — including the cost of new federal tax breaks for tips and overtime. [21]
6. Georgia Is Watching D.C. – and Other States May Follow
A new piece published today by the Savannah Morning News and distributed through Yahoo News under the headline “DC pauses new federal tax deductions. What it could mean for Georgia residents” underscores how D.C.’s move is reverberating beyond the nation’s capital. [22]
While Georgia has not yet announced any decoupling from OBBBA’s tip, overtime or senior provisions, the article frames D.C. as a potential blueprint:
- D.C. shows that a jurisdiction can keep federal breaks intact while denying the matching relief at the local level to preserve revenue.
- That example may encourage other states that are closely tied to the federal tax code — Georgia among them — to consider similar steps if budget pressures worsen.
Separately, a policy brief released today by the Georgia Budget & Policy Institute warns that eliminating or deeply cutting Georgia’s state income tax would primarily benefit high‑income households while raising costs for many working families. [23]
Taken together, these developments suggest Georgia is unlikely to rush into big, state‑funded tax giveaways mirroring the full slate of Trump’s federal breaks.
7. What This Means for Workers, Seniors and DIY Filers
If you’re a worker or retiree trying to plan for tax season, here’s what today’s developments mean in practical terms:
1. Your federal and state returns may diverge more than ever
- Federal level: Under OBBBA, many tipped workers, overtime earners and seniors will see lower taxable income on their federal return thanks to the new deductions. [24]
- State level: In D.C., Illinois, Colorado, New York, Maine and possibly other jurisdictions, those same amounts will remain taxable — often via new “add‑back” lines on state forms. [25]
That means your state refund could be much smaller than your federal one, even if you’re eligible for all the new Trump tax breaks.
2. Tax prep will get more complicated
Experts quoted in today’s reporting warn that this growing patchwork makes DIY tax preparation riskier, especially for: [26]
- workers with substantial tips or overtime,
- seniors juggling multiple deductions, and
- people who move between states or cities with different rules.
Expect tax software to ask more questions about where you live, what your state has adopted, and whether you need to add back certain federal deductions.
3. Budget pressures may drive more states to decouple
With federal law both cutting taxes and trimming spending, states face a squeeze: either accept lower revenue or decline to copy some of the new federal breaks. That tension is clear in D.C.’s billion‑dollar gap and Oregon’s projected shortfall tied to OBBBA’s spending cuts. [27]
It’s reasonable to expect more state debates in 2026 legislative sessions about whether to:
- keep taxing tips and overtime,
- scale back the impact of OBBBA’s senior deduction, or
- create their own targeted relief while protecting budgets.
8. How to Protect Yourself: Questions to Ask Before Filing
While every situation is different, here are smart steps to consider as 2025 tax season approaches:
- Check your state’s conformity status
- Look up your state revenue department’s guidance on OBBBA or “Trump’s 2025 tax law.”
- Specifically search for phrases like “no tax on tips,” “overtime deduction,” or “senior deduction.”
- Watch for “add‑back” lines on your state return
- In places like Colorado, New York and (likely) Illinois, the state tax form will explicitly ask for amounts you deducted federally for tips or overtime so they can be added back. [28]
- If you’re 65+, map out all your deductions
- Consider professional advice if you:
- Work in a heavily tipped job,
- Regularly log large amounts of overtime, or
- Rely on a mix of Social Security, pensions and wages in retirement.
Important: This article provides general information, not individualized tax or legal advice. For decisions about your own situation, consult a qualified tax professional or your state’s revenue agency.
9. The Bottom Line
On paper, Trump’s “No tax on tips,” “No tax on overtime” and “bonus senior deduction” have indeed become federal law. For many Americans, they will translate into real savings on 2025 federal income taxes. [31]
But today’s moves by Washington, D.C. and Illinois, along with earlier decisions in Colorado, New York and Maine, show that states are under no obligation to mirror those breaks. Instead, they are surgically cutting out some of OBBBA’s most politically popular features to shore up their own budgets and fund state priorities. [32]
For workers and seniors, that means the promise of “no tax on tips or overtime” now comes with a giant asterisk: “Check your state.”
References
1. eu.pjstar.com, 2. www.savannahnow.com, 3. en.wikipedia.org, 4. www.irs.gov, 5. www.irs.gov, 6. www.irs.gov, 7. www.irs.gov, 8. eu.pjstar.com, 9. en.wikipedia.org, 10. www.opb.org, 11. eu.pjstar.com, 12. www.newsweek.com, 13. www.newsweek.com, 14. www.newsweek.com, 15. www.newsweek.com, 16. eu.pjstar.com, 17. eu.pjstar.com, 18. eu.pjstar.com, 19. eu.pjstar.com, 20. www.michigan.gov, 21. www.opb.org, 22. www.savannahnow.com, 23. gbpi.org, 24. www.irs.gov, 25. eu.pjstar.com, 26. eu.pjstar.com, 27. www.newsweek.com, 28. eu.pjstar.com, 29. www.irs.gov, 30. www.michigan.gov, 31. www.irs.gov, 32. eu.pjstar.com
