All the states ‘blocking’ Trump’s ‘no tax on tips’ policy and where workers might not be eligible

Several US states have decided not to follow a federal proposal linked to Donald Trump’s One Big Beautiful Bill Act that would remove taxes on tips. While the policy is set to take effect federally on January 1, its adoption at the state level varies.

Tipping plays a major role in the US service industry, unlike in many other countries. In some states, employers are allowed to pay tipped workers less than the federal minimum wage if tips make up the difference, while other states require higher base pay and sometimes mandate tip-sharing with non-tipped staff.

Trump’s bill includes tax relief for tipped workers, but states are not required to follow it. Some automatically conform to federal tax changes, while others control their own tax systems and must pass separate legislation to adopt new rules.

New York has announced it will continue taxing tips by requiring workers to add them back onto their state tax returns. Officials cited the need to protect more than $1 billion in annual revenue, though future changes have not been completely ruled out.

California has also signaled it will not adopt the policy. State leaders argue the lost revenue, estimated at $3.2 billion, is needed to fund public programs, and any change would require new legislation.

Illinois is taking a similar stance, continuing to tax tips through an “add-back” process to ensure reported income reflects total earnings.

Meanwhile, states such as South Carolina, Iowa, North Dakota, Idaho, Montana, and Oregon automatically follow federal tax rules, meaning the policy will apply there unless laws change.