What is the OBBBA tip tax exemption?

The One Big Beautiful Budget Act (OBBBA), signed in 2025 and effective for tax year 2026, created a federal income tax deduction for up to $25,000 in qualified tip income for workers in traditionally tipped industries earning under $160,000/year in adjusted gross income. FICA (Social Security + Medicare, 7.65%) still applies to all tips.

Which states don't tax tips in 2026?

The nine states with no state income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — don't tax any income including tips. These states automatically provide the maximum benefit to tipped workers regardless of federal exemptions.

Which states have conformed to the OBBBA tip exemption?

As of May 2026, most states with income taxes have not passed conformity legislation to adopt the federal OBBBA tip exemption. Each state that has its own income tax must separately enact legislation to exempt tips from state taxation. Check your state's department of revenue for current status.

Do I still pay FICA on tips even with the OBBBA exemption?

Yes. The OBBBA exempts qualified tips from federal income tax only. Social Security (6.2%) and Medicare (1.45%) taxes — collectively FICA — still apply to all tip income. On $25,000 in tips, FICA is $1,913 regardless of the income tax exemption.

What counts as a 'qualified tip' under the OBBBA?

Qualified tips are voluntary cash gratuities received by employees in traditionally tipped industries: food and beverage service, hospitality, personal care services (hair, nails, spa), and delivery services. Mandatory service charges (automatically added gratuities of 18–20%) are not tips — they are wages and do not qualify for the exemption.

Updated May 2026 · OBBBA State Conformity Tracker · 6 min read

Does My State Tax Tips in 2026? OBBBA Conformity by State

The federal OBBBA exempts up to $25,000 in tips from federal income tax for workers earning under $160,000/year. But states are not required to follow federal tax law — and most haven't. Here's the complete conformity status for all 50 states, so you know exactly what you owe.

The key rule: Federal and state taxes are calculated separately. Even if your tips are federally exempt, your state may still tax the full amount. FICA (7.65%) applies to all tips regardless of any exemption.

States With $0 State Tax on Tips 9 states No state income tax at all

Federal OBBBA Tip Exemption $25,000 For qualified tips, workers under $160k/yr

States Still Taxing All Tips 41 states Most income-tax states haven't conformed

States With No State Tax on Tips (Best for Tipped Workers)

These 9 states have no state income tax — tips are completely free of state taxation.

StateState Tax on TipsNotes

Alaska $0 No state income tax

Florida → $0 No state income tax

Nevada → $0 No state income tax

New Hampshire $0 No income tax (interest/dividends tax repealed 2025)

South Dakota $0 No state income tax

Tennessee $0 No income tax (Hall Tax repealed 2021)

Texas → $0 No state income tax

Washington → $0 No state income tax

Wyoming $0 No state income tax

States That Still Tax Tips in 2026 (No OBBBA Conformity)

These states have income taxes and have not adopted the federal OBBBA tip exemption as of May 2026.

StateState Tax Rate on TipsStatus

California → Up to 9.3% Not conformed — FTB taxes all tips

New York → 6.25–10.9% Not conformed — + NYC tax

Illinois → 4.95% flat Not conformed

Pennsylvania → 3.07% flat Not conformed + Philly city tax

Georgia → 5.39% flat Not conformed as of May 2026

Arizona → 2.5% flat Not conformed — lowest flat rate

Colorado 4.4% flat Not conformed as of May 2026

Michigan 4.25% flat Not conformed as of May 2026

North Carolina 4.5% flat Not conformed as of May 2026

Virginia 5.75% Not conformed as of May 2026

Ohio Up to 3.99% Not conformed as of May 2026

Minnesota Up to 9.85% Not conformed as of May 2026

Oregon 8.75–9.9% Not conformed as of May 2026

Massachusetts 5.0% flat Not conformed as of May 2026

New Jersey Up to 6.37% Not conformed as of May 2026

Conformity status as of May 2026. States may pass legislation at any time — verify with your state's revenue department before filing.

How Much State Tax Do You Owe on Tips? Quick Estimates

On $25,000 in tip income (the OBBBA federal exemption cap), here's what states charge:

StateState Tax on $25k Tipsvs. No-Tax State

Florida / Texas / Nevada / WA$0Best

Arizona (2.5%)$625−$625/yr

Indiana (3.05%)$763−$763/yr

Pennsylvania (3.07%)$768−$768/yr

Michigan (4.25%)$1,063−$1,063/yr

Illinois (4.95%)$1,238−$1,238/yr

Georgia (5.39%)$1,348−$1,348/yr

Virginia (5.75%)$1,438−$1,438/yr

New York (~6.25%)$1,563−$1,563/yr

Massachusetts (5.0%)$1,250−$1,250/yr

Oregon (~9.0%)$2,250−$2,250/yr

California (~9.3%)$2,325−$2,325/yr

Minnesota (~9.85%)$2,463−$2,463/yr

State-by-State Tip Tax Deep Dives

For detailed breakdowns with real take-home numbers:

Does Florida Tax Tips in 2026? — No state tax, OBBBA applies
Does Texas Tax Tips in 2026? — No state tax, best for tipped workers
Does Nevada Tax Tips in 2026? — No state tax, Las Vegas casino dealers
Does Washington Tax Tips in 2026? — No state tax, Seattle high minimum wage
Does California Tax Tips in 2026? — Up to 9.3% on tips, no conformity
Does New York Tax Tips in 2026? — State + NYC city tax on all tips
Does Illinois Tax Tips in 2026? — 4.95% flat, no Chicago city tax
Does Pennsylvania Tax Tips in 2026? — 3.07% + Philadelphia city wage tax
Does Georgia Tax Tips in 2026? — 5.39% flat, Atlanta tipped workers
Does Arizona Tax Tips in 2026? — 2.5% flat, best among income-tax states

FAQs: Tips and Taxes in 2026

What is the OBBBA tip tax exemption?: The One Big Beautiful Budget Act (OBBBA), signed in 2025 and effective for tax year 2026, created a federal income tax deduction for up to $25,000 in qualified tip income for workers in traditionally tipped industries earning under $160,000/year in adjusted gross income. FICA (Social Security + Medicare, 7.65%) still applies to all tips.
Which states don't tax tips in 2026?: The nine states with no state income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — don't tax any income including tips. These states automatically provide the maximum benefit to tipped workers regardless of federal exemptions.
Which states have conformed to the OBBBA tip exemption?: As of May 2026, most states with income taxes have not passed conformity legislation to adopt the federal OBBBA tip exemption. Each state that has its own income tax must separately enact legislation to exempt tips from state taxation. Check your state's department of revenue for current status.
Do I still pay FICA on tips even with the OBBBA exemption?: Yes. The OBBBA exempts qualified tips from federal income tax only. Social Security (6.2%) and Medicare (1.45%) taxes — collectively FICA — still apply to all tip income. On $25,000 in tips, FICA is $1,913 regardless of the income tax exemption.
What counts as a 'qualified tip' under the OBBBA?: Qualified tips are voluntary cash gratuities received by employees in traditionally tipped industries: food and beverage service, hospitality, personal care services (hair, nails, spa), and delivery services. Mandatory service charges (automatically added gratuities of 18–20%) are not tips — they are wages and do not qualify for the exemption.

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