State Conformity Explained
When federal tax laws change, states must decide whether to follow along. This choice can significantly impact your "tax-free" overtime earnings.
Why Conformity Matters
Most states use the federal definition of Adjusted Gross Income (AGI) as the starting point for their own tax calculations. However, if a state does not "conform" to new federal deductions (like the 2026 overtime exemption), you might save money on federal taxes but still owe the full amount to your state.
1. Rolling Conformity
States with rolling conformity have laws that say, "We follow the federal tax code as it exists right now."
2. Static (Fixed-Date) Conformity
These states tie their tax law to the federal Internal Revenue Code as of a specific date (e.g., "the IRC as it existed on January 1, 2024").
The Challenge: If the federal government passes a law in 2025, a static state (like Virginia or Georgia) won't recognize it until the state legislature votes to update their "tie-in" date.
3. Selective or Non-Conformity
Some states (like California or New Jersey) pick and choose. They may adopt some federal tax breaks while explicitly rejecting others. Even if the federal government makes overtime tax-free, these states may decide to keep taxing it to protect their state budget.
Verify Your State
Conformity rules can change during any legislative session. Always check the official Department of Revenue link on your specific state page.