Coverage spread: 2 sources — 1 center · 1 right
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More than a year after President Trump signed the “One Big Beautiful Bill” into law on July 4, 2025, eliminating federal taxes on tips, overtime pay, and providing other income tax relief, a new analysis finds that many Democrat-led states have declined to extend those same breaks at the state level, creating a patchwork of tax outcomes depending on where a worker lives.
What the Analysis Found
According to reporting from the New York Post, five states — Connecticut, Minnesota, New Mexico, Rhode Island, and Vermont — tax every major category of income that the federal law exempted, including tips, overtime, and Social Security benefits. These states have also opted out of the law’s Education Freedom Tax Credit program, a school-choice-related tax benefit created by the legislation. The Post reports that as of this month, 31 states plus Washington, D.C., still tax tips in some form, despite the federal exemption.
Other states have taken a partial approach. New York still taxes tips and overtime at the state level, though Governor Kathy Hochul, a Democrat, has proposed legislation to exempt tips from state taxation. New York already exempts Social Security benefits for seniors and plans to join the federal education tax credit program in 2027. California similarly continues to tax tips and overtime and has not adopted the education tax credit, though it does not tax Social Security benefits at all.
The Post offers a concrete example from Minnesota, which has a progressive income tax ranging from 5.35% to 9.85%. A hypothetical server earning $70,000 annually, including $25,000 in tips, would fall into a 6.8% tax bracket and lose an estimated $1,700 of tip income to state taxes because Minnesota has not conformed its tax code to the federal exemption. The article also notes that workers in non-conforming states could lose up to roughly 10% of their tip income to state taxes.
The piece includes reaction from New Mexico, where the Restaurant Association criticized the state for continuing to tax tips despite substantial revenue from oil and gas production, calling it inconsistent with the needs of service workers and arguing it points to a broader need for income tax relief. A Republican Party of New Mexico official also weighed in, criticizing the state’s Democratic leadership over spending and tax policy.
Public Confusion Over the Law
A separate item from The Hill references a poll examining public confusion surrounding the “One Big Beautiful Bill,” though the specific findings, methodology, and figures from that poll were not detailed in the available material. Its inclusion alongside the state-tax analysis suggests that, beyond the substantive policy differences between states, there is also a broader public understanding gap about what the federal law actually changed — and what it did not.
How the Coverage Compares
The New York Post’s article is the most detailed of the sources reviewed, framing the story explicitly around Democrat-led states choosing not to follow the federal government’s lead, and naming specific states, tax rates, and dollar-figure impacts on workers. It draws a contrast between “biggest offender” states that reject all the federal breaks and states like New York and California that have adopted some exemptions (notably on Social Security) while withholding others (tips and overtime). The Post also incorporates outside voices — a restaurant industry association and a state Republican Party official — both of whom are critical of Democratic state governments, giving the piece a notably partisan framing that emphasizes political accountability for state-level tax decisions.
The Hill’s headline references a poll about confusion surrounding the bill, but no article text was available for that piece, so its specific data, sourcing, or conclusions cannot be summarized here. It’s worth noting explicitly that this leaves a gap: readers interested in how confused the public actually is about the law, and by how much, would need to consult that poll’s underlying data, which was not provided.
Why It Matters
The One Big Beautiful Bill was pitched by the Trump administration as delivering direct financial relief to tipped and hourly workers, retirees, and others by removing federal taxes on tips, overtime, and Social Security income. But because state tax codes operate independently from federal law unless states actively choose to “conform” their rules, the actual financial benefit workers see depends heavily on state policy — meaning a server in Minnesota or New Mexico may see meaningfully less benefit than one in a state that has matched the federal exemptions. This creates uneven outcomes nationally for workers in similar jobs, based purely on geography and state-level political decisions, and sets up a continuing point of political friction as Republicans push blue states to conform and some Democratic governors, like Hochul in New York, begin proposing matching state-level exemptions of their own.
Sources
Featured photo by Andrew Dawes on Unsplash