The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, reshaped federal income taxes for individuals and businesses. But your state has its own income tax code, and states are not required to follow federal law changes automatically. Whether OBBBA's deductions and exclusions reduce your state tax bill depends entirely on your state's conformity approach.
What Is State Tax Conformity?
State income tax codes are built on top of the federal Internal Revenue Code (IRC), but states decide how closely to track federal law. Three approaches dominate:
- Rolling conformity: The state automatically adopts IRC changes as they happen. About 20 states and DC use this model. OBBBA provisions took effect at the state level on July 4, 2025, unless the state legislature passed a decoupling bill.
- Static conformity: The state conforms to the IRC as it existed on a specific date. Federal changes after that date do not apply until the legislature passes a new conformity bill. About 17 states use this model.
- Selective (partial) conformity: The state evaluates federal changes individually and adopts only the provisions it chooses. Alabama, Arkansas, Mississippi, and Pennsylvania use this approach, which means OBBBA deductions generally do not flow through to state returns without specific enabling legislation.
Which Provisions Are States Contesting?
Even rolling conformity states have moved to decouple from specific OBBBA provisions that would significantly cut state revenue:
Overtime and tip exclusions. The OBBBA excludes qualifying overtime pay and tip income from federal gross income. DC and Colorado have decoupled from these exclusions, meaning overtime and tip income remains fully taxable at the state level in those jurisdictions even though it is excluded federally.
Bonus depreciation. The OBBBA permanently restored 100% bonus depreciation for qualifying property (see bonus depreciation rules for 2026). Delaware, Illinois, and DC have all decoupled from these enhanced depreciation rules, requiring businesses in those states to use a slower depreciation schedule for state purposes.
Senior standard deduction. The OBBBA added a $4,000 bonus standard deduction for taxpayers age 65 or older. Whether this flows through to your state return depends on whether your state starts its computation from federal taxable income, federal AGI, or its own base.
SALT cap. The OBBBA raised the federal SALT deduction cap to $40,000 for most filers (with a phaseout for high earners). States with their own income taxes are not directly impacted by the federal SALT cap, but some states are reevaluating pass-through entity tax (PTET) workarounds in light of the higher cap.
States Without a Personal Income Tax
Nine states impose no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Individual taxpayers in these states face no state conformity questions for personal income tax, though businesses may still encounter conformity issues for corporate income or franchise tax purposes.
What This Means for Your 2026 Return
If you plan to claim OBBBA-related deductions on your state return, such as the tips or overtime exclusions, the senior deduction bonus, or accelerated depreciation, verify your state's current position before filing. State legislatures are actively debating conformity bills throughout 2026, so the landscape is still shifting.
For taxpayers in static conformity states, the default is that OBBBA provisions do not apply at the state level unless your state has passed a specific adoption bill. For business owners in rolling conformity states, check whether your state has decoupled from bonus depreciation or R&D expensing before computing state depreciation deductions.
Have questions about OBBBA's impact on your state tax situation? Contact TS CPA for a free consultation. We respond within the same day.