State Lawmakers Face Dilemma Over Tax Breaks Amidst Federal Changes

Sat Dec 20 2025 09:29:06 GMT+0200 (Eastern European Standard Time)

As states prepare for their legislative sessions, they must decide whether to adopt new tax breaks championed by the Trump administration, which include deductions for tips and overtime wages.

With the federal government introducing significant tax cuts, including deductions aimed at individuals and businesses, individual states must decide whether to opt into or out of these changes. The complexities of differing state tax laws create challenges, as some states automatically adopt federal tax changes while others do not. This decision could drastically affect state revenues and citizens' tax burdens, leading to a cautious approach among state legislators as many express skepticism about the implications of these federal tax cuts.

JEFFERSON CITY, Mo. (RTW News) — A pressing question awaits lawmakers as they gather for their annual sessions: should states tax tips? This dilemma arises as the federal government, under President Trump, advocates for a range of new tax breaks for individuals and businesses, including one-time deductions aimed at tips, overtime wages, and business expenses...

States are faced with the challenge of handling the new federal tax breaks while balancing their budgetary constraints. The Trump administration's call for immediate state alignment with federal tax policies is fueling state-level debates, with many hesitant to adopt measures that could shrink their revenue amid rising costs from essential social programs...

Michigan recently made headlines as the first state to opt into federal tax benefits for tips and overtime, anticipating a budget impact that could exceed $150 million this year alone. However, skepticism continues, with many states assessing the long-term implications of federal conformity on state financial health...

As discussions resume in January, the path forward hinges on balancing fiscal responsibility with the need to provide tax relief to residents, especially in the wake of growing economic pressures...