State Tax Conformity
When the federal government changes tax rules for 2026, states must decide whether to adopt those changes. This decision is called Conformity.
Why Federal Laws Don't Always Apply to States
Most people assume that if the IRS says overtime is "tax-free," then their state tax bill will also go down. However, the U.S. Constitution allows states to maintain independent tax codes. This creates a "conformity gap" where income can be exempt federally but still taxable locally.
The Three Types of State Conformity
How your state reacts to the 2026 overtime deduction depends on which category they fall into:
1. Rolling Conformity
States like Illinois, Michigan, and Maryland automatically adopt federal tax changes as they happen. If federal law changes in 2026, these states usually follow suit without needing a new vote.
2. Static (Fixed-Date) Conformity
States like Virginia, Georgia, and Arizona tie their tax laws to the federal code as of a specific date. They must pass a new state law to update that date and recognize the 2026 overtime exemption.
3. Selective/Non-Conformity
States like California and New Jersey pick and choose which federal rules to follow. They may explicitly decide to tax overtime income even if the federal government makes it exempt.
Impact on Your 2026 Paystub
If your state does not conform to the federal overtime deduction, your taxes would look like this:
| Tax Component | Federal Status | State Status |
|---|---|---|
| Income Tax | EXEMPT ($0) | TAXABLE (Varies) |
| FICA (Payroll) | TAXABLE (7.65%) | N/A |
Check Your State's Status
Because state legislatures meet at different times, conformity status can change mid-year. Visit our state-specific pages for direct links to your local Department of Revenue.