What to know about Trump's tax breaks for tips and overtime when filing state tax returns

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What to know about Trump's tax breaks for tips and overtime when filing state tax returns

2026-04-12 12:02 Last Updated At：12:10

As the tax-filing deadline nears, millions of Americans are expected to claim new federal income tax breaks for tips and overtime wages available for the first time under a wide-ranging tax law enacted by President Donald Trump.

But many people won’t get those same deductions when they fill out their state income tax forms. That is because it is up to each state to decide whether to match federal tax changes, and many have decided not to do so.

In states that don’t conform to the federal tax changes, workers who receive a federal tax deduction for tips or overtime still will owe state taxes on those earnings.

The tax-filing deadline is Wednesday for the federal government and most states. Here is what to know about state income tax rates and deductions:

In most states, individuals must fill out two separate tax forms. First, the federal income tax form. Then a state income tax form. The order matters, because most states use figures from the federal tax form as the starting point for their state tax calculations.

No income tax is levied in eight states — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas and Wyoming. Washington state taxes income from capital gains but not wages and salaries. Missouri taxes income from wages and salaries but not capital gains.

Only about a half-dozen states are mirroring Trump's law by offering tax breaks on tips and overtime wages or for loan interest on new vehicles assembled in the U.S.

All three of those tax deductions are available to state income taxpayers in Idaho, Iowa, Montana, North Dakota and Oregon. Colorado offers the tips and auto loan deductions but not the overtime tax break. Alabama offers only the auto loan deduction.

Laws in several states automatically apply federal tax changes to state income taxes unless the governor and lawmakers opt out — like Colorado officials did on the overtime tax deduction. But in most states, the tax breaks are available only if officials updated their state laws, like they did in Idaho.

State income tax forms in Arizona list tax deductions for tips, overtime, auto loans and older residents based on a November executive order from Democratic Gov. Katie Hobbs. She assumed the Republican-led Legislature would later pass a bill putting the tax breaks into state law.

But Arizona law remains unchanged. Hobbs vetoed two tax-break bills because she objected to provisions that also would have adopted Trump's corporate tax breaks. And lawmakers have not passed a third attempt.

“It’s an extraordinarily unusual situation,” said Adam Chodorow, a law professor at Arizona State University who specializes in tax law.

“We will likely have lots of people deducting tips” and overtime wages “who aren’t legally entitled to do so,” he said. “But they are being instructed by the state government to take those deductions.”

It is possible that Arizona still could enact a law officially allowing the deductions; it could even be done retroactively, after the tax-filing deadline.

Tipped workers and overtime earners almost got tax breaks this year in some additional states.

South Carolina extended its deadline to file for tax refunds to Oct. 15 to allow time for the Republican-led Legislature to opt in to the federal tax deductions. Legislation to do so passed the House but got defeated in the state Senate.

Wisconsin's Republican-led Legislature passed bills to allow the tips and overtime deductions. But Democratic Gov. Tony Evers vetoed them on April 3.

Officials in Georgia, Indiana and Michigan have enacted laws allowing tax deductions for tips and overtime wages starting with the 2026 tax year. That means they aren't available for people currently filing their 2025 tax returns.

Oregon, meanwhile, could move the other direction. Legislation pending before Democratic Gov. Tina Kotek would stop offering the auto loan deduction and some corporate tax breaks for the 2026 tax year.

Other states could still opt in or out of the tax deductions for their 2026 taxes.

Pakistan calls on Iran and US to keep the ceasefire after talks end without agreement

ISLAMABAD (AP) — Pakistan Foreign Minister Ishaq Dar called on Iran and the United States to keep their commitment to maintain a ceasefire after the countries ended historic, face-to-face talks without an agreement.

“It is imperative that the parties continue to uphold their commitment to ceasefire,” Dar said.

Pakistan will continue to play a mediating role and try to facilitate dialogue between Iran and the U.S. in coming days, Dar said.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

ISLAMABAD (AP) — The United States and Iran ended a historic round of face-to-face talks early Sunday without reaching an agreement and the fate of the fragile, two-week ceasefire still unclear.

Vice President JD Vance, who led the U.S. delegation during the 21 hours of talks in Pakistan's capital Islamabad, said negotiations finished without a deal after the Iranians refused to accept American terms to refrain from developing a nuclear weapon.

There was no immediate comment from the Iranian delegation or the Pakistani mediators.

The discussions began Saturday, a few days after a fragile ceasefire was announced as the war that has killed thousands of people and shaken global markets entered its seventh week.

Vance said he remained in constant communication with U.S. President Donald Trump and others in the administration during the negotiations.

“But the simple fact is that we need to see an affirmative commitment that they will not seek a nuclear weapon, and they will not seek the tools that would enable them to quickly achieve a nuclear weapon,” Vance told reporters. “That is the core goal of the president of the United States. And that’s what we’ve tried to achieve through these negotiations.”

The vice president said he spoke with Trump “a half dozen times, a dozen times, over the past 21 hours” and also spoke with Secretary of State Marco Rubio, Treasury Secretary Scott Bessent and Adm. Brad Cooper, head of the United States Central Command.

“We were constantly in communication with the team because we were negotiating in good faith,” Vance said, speaking at a podium in front of a pair of American flags with special envoys Steve Witkoff and Jared Kushner to his side. “And we leave here, and we leave here with a very simple proposal, a method of understanding that is our final and best offer. We’ll see if the Iranians accept it.”

Two Pakistani officials, who spoke on condition of anonymity because they were not authorized to brief the press, said a third round of discussions between the delegation heads had finished and the talks would resume after a break.

Then the U.S. vice president addressed the press, announced there was no agreement and went to the airport to leave Pakistan.

Trump had said he would suspend attacks against Iran for two weeks. Vance’s comments did not indicate what will happen after that time period expires or if the ceasefire will remain in place.

The U.S. military said two destroyers transited the Iran-gripped Strait of Hormuz ahead of mine-clearing work, a first since the war began. Iran’s state media, however, said the joint military command denied that.

“We’re sweeping the strait. Whether we make a deal or not makes no difference to me,” Trump told journalists as talks continued and the time approached 2 a.m. in Islamabad. He called negotiations “very deep.” Iranian state TV noted what it called “serious” differences.

The U.S. delegation led by Vance and the Iranian one led by Parliament Speaker Mohammad Bagher Qalibaf discussed with Pakistan how to advance the ceasefire already threatened by deep disagreements and Israel's continued attacks against the Iranian-backed Hezbollah in Lebanon, whose health ministry said the death toll has surpassed 2,000.

Since the Islamic Revolution in Iran in 1979, the most direct U.S. contact had been in 2013 when President Barack Obama called newly elected President Hassan Rouhani to discuss Iran’s nuclear program. Obama's secretary of state, John Kerry, and counterpart Mohammad Javad Zarif later met during negotiations toward the 2015 Iran nuclear deal — a process that lasted well over a year.

Now the far broader talks featured Vance, a reluctant defender of the war who has little diplomatic experience and warned Iran not to “try and play us,” and Qalibaf, a former commander with Iran's powerful Revolutionary Guard who has issued some of Iran's most fiery statements since fighting began.

Iran’s state-run news agency said the three-party talks began after Iranian preconditions, including a reduction in Israeli strikes on southern Lebanon, were met.

Iran's delegation told state television it had presented “red lines” in meetings with Pakistani Prime Minister Shehbaz Sharif, including compensation for damage caused by U.S.-Israeli strikes that launched the war on Feb. 28 and releasing Iran’s frozen assets.

The war has killed at least 3,000 people in Iran, 2,020 in Lebanon, 23 in Israel and more than a dozen in Gulf Arab states, and caused lasting damage to infrastructure in half a dozen Middle Eastern countries. Iran's grip on the Strait of Hormuz has largely cut off the Persian Gulf and its oil and gas exports from the global economy, sending energy prices soaring.

Reflecting the high stakes, officials from the region said Chinese, Egyptian, Saudi and Qatari officials were in Islamabad to indirectly facilitate talks. The officials spoke on condition of anonymity to discuss the sensitive matter.

In Tehran, residents told The Associated Press they were skeptical yet hopeful after weeks of airstrikes left destruction across their country of some 93 million people.

“Peace alone is not enough for our country because we’ve been hit very hard, there have been huge costs,” 62-year-old Amir Razzai Far said.

In his strongest words yet, Pope Leo XIV denounced the “delusion of omnipotence” fueling the war.

Iran’s closure of the Strait of Hormuz has proved its biggest strategic advantage in the war. Around a fifth of the world’s traded oil had typically passed through on over 100 ships a day. Only 12 have been recorded transiting since the ceasefire.

On Saturday, Trump said on social media that the U.S. had begun “clearing out” the strait.

“Today, we began the process of establishing a new passage and we will share this safe pathway with the maritime industry soon,” U.S. Central Command commander Adm. Brad Cooper later said. The U.S. statement about the destroyers added: "Additional U.S. forces, including underwater drones, will join the clearance effort in the coming days.”

Iranian Foreign Minister Abbas Araghchi had said Tehran was entering negotiations with “deep distrust” after strikes on Iran during previous talks. Araghchi, part of Iran’s delegation in Pakistan, said Saturday that his country was prepared to retaliate if attacked again.

Iran’s 10-point proposal ahead of the talks called for a guaranteed end to the war and sought control over the Strait of Hormuz. It included ending fighting against Iran’s “regional allies," explicitly calling for a halt to Israeli strikes on Hezbollah.

The United States’ 15-point proposal includes restricting Iran’s nuclear program and reopening the strait.

Israel pressed ahead with strikes in Lebanon after saying there is no ceasefire there. Iran and Pakistan have disagreed.

Negotiations between Israel and Lebanon are expected to begin Tuesday in Washington, Lebanese President Joseph Aoun’s office has said, after Israel's surprise announcement authorizing talks despite the countries lack of official relations.

But as thousands in Lebanon protested the planned negotiations on Saturday, Prime Minister Nawaf Salam said he had postponed a planned trip to Washington “in light of the current internal circumstances.” His absence should not affect talks as the first round is expected to be at the ambassadorial level.

Israel wants Lebanon's government to assume responsibility for disarming Hezbollah, much like was envisaged in a November 2024 ceasefire. But the militant group has survived efforts to curb its strength for decades.

Hezbollah joined the war in support of Iran in the opening days. Israel followed with airstrikes and a ground invasion.

The day the Iran ceasefire deal was announced, Israel pounded Beirut with airstrikes, killing more than 300 people in the deadliest day in Lebanon since the war began, according to the country's Health Ministry.

Castillo reported from Beijing, and Finley and Binkley from Washington. Josh Boak in Washington, Samy Magdy in Cairo, Cara Anna in Lowville, New York, and Christopher Weber in Los Angeles contributed.