No Income Tax States and the Tips/Overtime Deduction: The Easy Answer

While workers in California, New York, and dozens of other states wait to find out whether their state will conform to the OBBBA deductions, workers in nine states already have the answer. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. For these workers, the OBBBA deductions are purely a federal matter, and they benefit fully without any conformity questions to resolve.

The nine no-income-tax states

As of 2026, the following states impose no tax on personal income:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

New Hampshire is the newest addition to this list. The state had previously taxed interest and dividend income at 5%, but that tax was repealed effective January 1, 2025. Starting with the 2025 tax year, New Hampshire residents pay no state income tax on any type of income, including wages, tips, overtime, and investment income.

Tennessee followed a similar path, phasing out its Hall Income Tax on interest and dividends by 2021. Both states are now fully no-income-tax states for all practical purposes.

Why conformity is irrelevant here

State conformity to the IRC only matters when a state has an income tax that uses federal definitions as a starting point. If there is no state income tax at all, there is nothing to conform. The OBBBA deductions (tips, overtime, and the senior bonus) reduce federal taxable income. In a no-income-tax state, that is the only layer of income tax that exists.

This gives workers in these nine states a cleaner tax picture than their counterparts in conformity-dependent states. A server in Florida earning $25,000 in qualified tips deducts that amount on their federal return and pays no state tax on any income. A server earning the same amount in a state like New York pays state tax on the full $25,000because New York has not conformed.

The advantage is not limited to tips. A construction worker in Texas who earns $12,500in overtime premiums deducts the full amount federally and owes no state tax on any earnings. A senior citizen in Nevada receiving the $6,000 senior bonus deduction gets the full federal benefit with no state-level questions to answer.

Worked example: tipped worker in Florida

In this example, the worker saves $2,390 in federal income tax. Because Florida has no income tax, there is no additional state layer to calculate. The total savings equal the federal savings, and no conformity analysis is needed.

Compare this to a worker with the same income in a state that taxes tips at 6%. That worker would save the same $2,390 federally but still owe roughly $1,200in state tax on the tips. The no-income-tax advantage is clear.

FICA still applies everywhere

Living in a no-income-tax state does not exempt you from federal payroll taxes. Social Security tax (6%) and Medicare tax (1%) apply to all reported wages, tips, and overtime in every state. The OBBBA deductions reduce only federal income tax. They have no effect on FICA.

For the Florida server in the example above, FICA on the $20,000 in tips would be $1,240 (Social Security) plus $290 (Medicare), totaling $1,530. This amount is owed regardless of the tips deduction and regardless of the state's tax status.

What workers in these states should know

If you work in one of the nine no-income-tax states, the OBBBA deductions are straightforward:

• Claim the federal deduction. File Schedule 1-A with your federal return. Deduct up to $25,000 in qualified tips, up to $12,500 in overtime premiums ($25,000 MFJ), and $6,000 if you are 65 or older.
• No state forms needed. Since your state has no income tax, there is no state return to file and no conformity question to answer.
• FICA is unchanged. Your Social Security and Medicare taxes are the same as before the OBBBA. Do not expect your payroll taxes to decrease.
• Check your W-2. Look for Box 12 Code TP (tips) and Code TT (overtime). These are the amounts you enter on Schedule 1-A.
• Watch the phase-out. The MAGI phase-out begins at $150,000 for single filers. If your total income approaches this level, use the no tax on tips calculator to see if your deduction is reduced.

For workers in these states, the OBBBA deductions are a clean win. No waiting for state guidance, no conformity uncertainty, and no amended returns if a legislature changes its mind. The federal savings are the full picture, and they are available right now.