State lawmakers remain divided over whether to align tax codes with President Donald Trump’s “One Big Beautiful Bill,” leaving many workers facing different federal and state tax treatment.
By yourNEWS Media Newsroom
As state legislatures prepare to convene early next year, most have not yet adopted federal tax changes enacted under President Donald Trump’s signature “One Big Beautiful Bill,” creating uncertainty over whether residents will receive the same tax relief at the state level as they do federally.
The U.S. Treasury Department has urged states to “immediately conform” to the new federal law, which provides temporary deductions for workers’ tips and certain overtime earnings, tax breaks on interest for new automobile loans, and expanded deductions for business equipment. While the changes apply automatically to federal tax filings, most state tax systems do not automatically mirror federal law, according to reporting by The Associated Press.
As a result, workers in states that decline to adopt the changes could owe state taxes on income—such as tips or eligible overtime pay—that is no longer taxed federally. To date, only a small number of states have moved to update their tax codes.
Michigan has become the first state to adopt the federal deductions for tips and overtime, with the changes scheduled to take effect in 2026. State lawmakers there offset the anticipated revenue losses by rejecting several federal corporate tax provisions that would have further reduced state revenues, according to state reporting cited by AP.
Treasury Secretary Scott Bessent has criticized states—particularly those led by Democrats—for failing to adopt the tax changes Trump signed into law in July 2025. He has argued that resisting conformity undermines the intent of the federal legislation by limiting its impact on workers’ take-home pay.
State officials opposing immediate adoption have pointed to budgetary pressures. Lawmakers in several Democratic-led states contend that reducing tax collections could threaten funding for education, healthcare, and infrastructure. According to AP, some states have already taken steps to decouple from portions of the federal law to protect their budgets.
In Illinois, legislators approved measures to decouple aspects of the corporate tax changes to preserve hundreds of millions of dollars in state revenue. Democratic Gov. J.B. Pritzker said the state must safeguard its budget against what he described as fiscal strain imposed by federal policy changes that could leave essential services underfunded.
Timing has added further pressure. Most state legislative sessions begin in January, giving lawmakers limited time to decide whether to apply the federal tax changes retroactively for the 2025 tax year. Some states may opt to implement the changes starting in 2026 instead, delaying potential tax relief for residents, AP reported.
Supporters of state conformity argue that aligning tax codes would simplify compliance and boost workers’ after-tax income. Critics counter that the resulting revenue losses would force difficult trade-offs, particularly in states already facing tight budgets, leaving most legislatures undecided as the new year approaches.
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