Several states are choosing not to adopt a federal policy, proposed by Donald Trump, that would provide tax breaks on tips for service workers. This measure is part of the “One Big Beautiful Bill Act,” set to take effect on January 1. The policy aims to offer tax relief to tipped employees, who often depend on gratuities for a significant portion of their income.

States have varying rules regarding tipped wages. Some allow employers to pay below the federal minimum wage if tips make up the difference, while others mandate higher base wages but require tip-sharing with non-tipped staff.

New York is among the states opposing the federal tax change. State officials cite the need to protect over a billion dollars in annual tax revenue. New York will require individuals to include tips as taxable income on their federal returns, though the governor’s office has not entirely ruled out future action.

California has also signaled it will not conform to the policy, aiming to preserve an estimated $3.2 billion in revenue for state programs. Adopting the change would generally require new legislation from the state.

Illinois similarly plans to continue taxing tips. It will require an ‘add-back’ adjustment on tax returns to ensure tips and overtime are fully included in taxable income calculations.

Conversely, some states automatically align their tax codes with federal changes. These include South Carolina, Iowa, North Dakota, Idaho, Montana, and Oregon, where the policy would take effect.

Other states manage their tax systems independently and must pass specific legislation to adopt such federal proposals. While many are expected to adopt portions of the broader bill, the tax break on tips faces resistance in several key states.