In our recent blog posts, we covered the federal impact of the One Big Beautiful Bill Act (OBBBA). In this post, we turn to how these federal changes interact with state tax systems—specifically whether each state chooses to conform to or decouple from the new federal provisions. A state’s tax impact depends on two factors: how up-to-date its conformity statute is and whether the state adopts, modifies, or rejects (“decouples from”) each federal rule.

Most states begin their calculations using the Internal Revenue Code (IRC) as a starting point because conformity reduces both administrative burdens and taxpayer compliance costs. For filers, conformity simplifies tax preparation—often allowing them to transfer information directly from their federal return. In effect, conformity is a form of “delegating up,” helping states conserve legislative and administrative resources.

However, no state adopts the federal code exactly as written. Every state makes adjustments by adding, subtracting, or modifying provisions, and by choosing whether to follow the current IRC or a specific prior version. States also decide independently whether to accept new federal tax breaks—especially during periods of budget pressure, when many look to raise revenue by decoupling from favorable federal provisions.

Examples of States Decoupling from OBBBA Federal Provisions

  • New Jersey (NJ): NJ’s Gross Income Tax is not based on federal AGI. As a result, federal OBBBA deductions for overtime, tips, and senior benefits do not affect New Jersey individual income tax returns.
  • New York (NY): NY will continue taxing tips and overtime. It is adding new “add-back” codes on Form IT-225 for exempt tip income and exempt overtime pay.
  • District of Columbia (DC): DC is removing local income tax savings tied to several new federal benefits, including no tax on tips, no tax on overtime, personal car loan interest, and the $6,000 senior bonus deduction, among others.

Example of State not decoupling as already independent from Federal tax code

  • Pennsylvania (PA): PA is not decoupling from the federal OBBBA provisions for individual taxes because its personal income tax system is already largely independent of the federal tax code.  Pennsylvania’s recently enacted legislation (Act 45 of 2025) specifically addresses the federal One Big Beautiful Bill Act (OBBBA) by decoupling the state’s corporate net income tax (CNIT) from certain federal business tax breaks.

As states continue to evaluate their approach to OBBBA, the landscape will evolve quickly. We will keep you informed as new conformity and decoupling decisions emerge, and our team will ensure that all GG CPA Services clients remain fully compliant with both federal and state requirements. Count on us to monitor the changes, interpret the impact, and guide you through every update with clarity and confidence.

Link USA Today – Excited about no tax on tips? Bonus senior deduction? Not in these states

Link Tax Foundation – State Tax Implications of the One Big Beautiful Bill Act