Ministry of Finance announces job openings eligible for tip tax exemption
The U.S. Treasury Department has released a tentative list of occupations that do not require workers to pay taxes or tips.
Fox – 5 Atlanta
Experts say the emergency bill passed in Washington, D.C., repeals a major tax break for residents enshrined in the One Big Beautiful Bill Act, highlighting why Americans should pay attention to their state tax laws.
To address an expected $1 billion in revenue losses over the next three years due to federal job losses, the Washington City Council passed an emergency tax bill this month that would separate parts of the tax code from recent federal tax changes under President Donald Trump’s signature Tax and Spend Act. Among the changes are the elimination of the new tax exemption for tip deductions and the local income tax savings associated with the $6,000 bonus senior deduction. That means District residents who qualify for these federal tax benefits won’t be able to claim them on their local tax returns and end up losing their savings.
While most Americans focus on federal tax law, the move in Washington shows why Americans need to start paying more attention to state tax law. Each state is not required to comply with all federal tax provisions. As coronavirus-era federal aid dries up, the economy becomes uncertain, and states seek funding, many states may be looking to shore up their budgets by decoupling from the federal tax code.
“The District of Columbia is not alone in assessing the costs of OBBBA compliance, and lawmakers across the country are evaluating the tradeoffs associated with adopting or severing key provisions of the Settlement Act,” wrote the Tax Foundation, a nonprofit research organization.
What tax benefits are excluded in DC?
Effective retroactively to January 1, 2025, school districts suspended several provisions of the law, which President Trump signed on July 4.
- Increase in basic basic deduction amount
- Charitable donations to non-itemizers
- Exclusion of qualified small business stock
- Tips are not taxed
- Overtime pay is not taxed
- Private car loan interest deduction
- Bonus $6,000 Senior Tax Credit
Parliament’s emergency amendment will apply for 90 days, with a temporary extension of 225 days planned. Any permanent measure would have to go through the usual longer permanent state legislative process, requiring more debate and votes.
Repealing some of the tax provisions could save school districts $95 million in fiscal year 2025 and $567 million by fiscal year 2029, the Tax Foundation said.
Some of the savings will be funneled toward promoting full local matching of the federal Earned Income Tax Credit and establishing a local child tax credit of $1,000 per child for eligible households, the council said.
Still, residents who qualify for these tax breaks will lose out. Richard Pong, a San Francisco-based certified public accountant, estimated that eligible seniors who can’t claim the extra $6,000 deduction on their tax returns stand to lose between $360 and $390.
What are other states doing?
Washington is not alone in choosing to break away from federal tax law that could benefit individual taxpayers.
Bong said President Trump’s tax juggernaut is “wreaking havoc on state budgets as many states comply with the Internal Revenue Code, resulting in significant reductions in projected revenue for these states.”
Other states working to protect their budgets include:
- Colorado: Refusal to exempt overtime pay from tax. The plan is to add an “excess federal deduction for overtime pay” section to the state tax return. Taxpayers must report the amount withheld to the federal government and add it back for state purposes.
- new york: Continue to tax tips and overtime pay by adding new codes to the IT-225 form: “Add Exempt Tip Income” and “Add Exempt Overtime Pay.”
- Illinois: It does not introduce a tax exemption for overtime pay or tips, and would likely update Schedule M to require federally exempt tips and overtime pay to be added to income.
- maine: Denying bonus senior deductions and deductions for car loan interest, tips, and overtime pay.
“Each state has a different approach, so we will need to pay close attention to state alignment over the next few years,” said Eric Clements, director of tax compliance at Thomson Reuters. “This complexity makes DIY tax preparation impractical for affected customers.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
