Which states have passed legislation in 2026 to adopt the federal overtime and tip deductions?
Executive summary
Only one state—Michigan—has moved through the legislative process to adopt the new federal deductions for tips and overtime wages effective in 2026; most other states are either decoupling, waiting for 2026 sessions, or remaining on default conformity lists where the federal change would have carried over absent a legislative decision (Michigan adopted the change; Colorado explicitly opted out) [1] [2] [3]. Reporting and tax-policy analysis show a broader picture of states weighing fiscal tradeoffs rather than a rush to mirror the federal law [4] [3].
1. Michigan stands alone so far — legislation enacted for 2026 conformity
Michigan is identified in multiple outlets as the first — and, as of reporting, the only — state to opt into the federal “no tax on tips” and overtime deductions for tax year 2025 (meaning they take effect on state returns in 2026) [1] [2]. Fortune and Idaho Business Review both report Michigan’s adoption as effective in 2026 and call it the lone state that has enacted conformity legislation to accept those federal deductions [1] [2]. This is the clearest, corroborated example of a state-level law change to mirror the One Big, Beautiful Bill Act’s tip and overtime provisions [1].
2. Many states are effectively “wait-and-see” or have taken different paths, not 2026 enactments
While some states would have been automatically affected by federal changes under their tax-code linkage, many legislatures have not passed mirror laws; instead they are analyzing budget impacts or explicitly decoupling. Thomson Reuters’ state-decoupling tracking lists Georgia, Maryland and South Carolina among “wait-and-see” states planning to address the issue in 2026 sessions, meaning they had not enacted 2026 legislation to adopt the deductions at the time of that reporting [3]. Several analyses also flag that state-level fiscal pressures and the size of revenue hits are driving cautious approaches rather than rapid adoption [4] [3].
3. Default conformity vs. affirmative adoption — seven states would have been “connected,” but that’s not the same as new 2026 legislation
Tax-policy projections note that, because of how many state codes link to federal law, seven states were “connected” to the overtime deduction absent action: Colorado, Idaho, Iowa, Michigan, Montana, North Dakota, Oregon and South Carolina, though Colorado moved to opt out before the federal law’s enactment [4] [1]. Importantly, being “connected” means the federal change would automatically apply under a state’s static conformity rules unless the state legislature acts to decouple; it does not necessarily indicate a newly passed 2026 statute expressly adopting the deductions [4] [3].
4. Fiscal politics and employer reporting complications shaped state choices
Analysts warn the deductions could cost states hundreds of millions of dollars in 2026 and beyond, a reality prompting many governors and legislators to resist adoption; ITEP estimates revenue losses for the seven connected states and projects broader fiscal strain if many states mirrored the federal move [4]. At the same time, IRS and Treasury guidance, plus new W‑2 and 1099 reporting changes slated for 2026, create administrative frictions that states must weigh before changing conformity rules or writing new carve-outs into state tax codes [5] [6].
5. What’s not in the reporting and why that matters
Available coverage clearly documents Michigan’s legislative adoption for 2026 and highlights states that remain undecided or that have signaled decoupling, but the sources do not provide a comprehensive, up‑to‑the‑minute list of every state legislative action through all of 2026; therefore this account relies on the cited reporting snapshots that consistently identify Michigan as the only state to have enacted adoption and Colorado as having opted out [1] [2] [3]. Because state legislatures convene at different times and may take action later in 2026, a definitive, continually updated register would require checking each state’s post‑session tax code changes beyond these sources.