Trump Cut Taxes on Tips and Overtime --California Wants To Keep Taxing Them Though.
Why blue-state refusal to conform quietly claws back worker tax relief — and punishes employers too...
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A New Year, Taxes On Tips Are Going Down, But Not As Much Here…
With the new year approaching, Americans are finally seeing some tax relief. As the 2026 tax season nears, new laws from Washington will start to affect working Americans, including those who earn tips and overtime. These changes, driven by Republican policies championed by President Trump, lower federal taxes and allow workers to keep more of their earnings. However, California may not adopt these federal changes, creating an unfortunate impact for state residents and determining how much relief they actually receive.
At the federal level, that relief is scheduled to flow as intended. Congress changed the tax code to create new federal deductions for qualified tips and qualified overtime pay, subject to caps and income eligibility rules. Those deductions apply nationwide. In many states, such federal changes are mirrored to ensure relief is not diluted or offset at the state level. This process, known as “conforming,” helps ensure that taxpayers experience policy changes clearly and consistently rather than having federal relief quietly undermined by conflicting state rules.
But California seems ready to take a different approach.
On July 4, President Donald Trump signed the One Big Beautiful Bill, which added new deductions for qualified tips and overtime pay. This means real federal tax relief for millions of hourly workers. However, in several Democratic-led states, such as California, leaders are showing little interest in matching these changes. As a result, workers are currently eligible for federal tax relief but still face state taxes.
What “Conforming” Usually Looks Like
When the federal government changes tax policy, states usually match those changes to keep things simple. Using the same rules for taxable income reduces paperwork, simplifies compliance, and helps avoid confusion for both taxpayers and employers. It also prevents situations in which income is taxed differently by state and federal governments, which can lead to higher taxes that are difficult for workers to anticipate.
There are many recent examples. When Congress increased the standard deduction in 2017, many states updated their tax codes to match, so taxpayers got the same relief from both. The idea is simple: if the federal government treats income a certain way, it usually makes sense for states to do the same. When states don’t conform, it creates more confusion and higher taxes for people.
Because California does not automatically adopt all federal tax-code changes, Sacramento must affirmatively conform. Otherwise, income receiving favorable federal treatment remains fully taxable for California purposes. Compliance would require a change in the law — in California, that means a Democratic legislature passing a bill and sending it to the Democratic Governor, who would sign it.
Blue States Balk at “No Tax on Tips”
According to the New York Post, several blue states, including California, New York, and Illinois, have not extended state tax relief to match the new federal deductions for tips and overtime. No doubt big-spending liberal policy makers in blue states say they are concerned about covering their big-spending budgets and know that mirroring the federal changes would reduce funding for government programs.
The Post also noted that, although the tax relief is popular and helps working-class people, state leaders appear more interested in keeping their own revenue than in passing along the federal benefit. California has shown no sign of changing its policy, even as workers prepare to file under the new federal rules. The result is simple: income that receives a federal break will still be fully taxed in California.
The Alarm Bell Is Ringing Here in California
Yesterday, The California Globe raised similar concerns, warning that Sacramento’s refusal to match the federal changes would cancel out much of the tax relief for California workers. The article explains that tips and overtime pay, which now qualify for federal deductions, would still be taxed by the state, cutting into the take-home pay of the very workers lawmakers say they support.
The Globe also mentions Reuters, which estimates that if California matched the federal tax changes, the state could lose about $3.2 billion in revenue each year. Right now, California’s tax code only syncs with the federal code through the beginning of this year. This means any federal tax changes after that date, including the One Big Beautiful Bill, are not included unless lawmakers pass a new measure. State Capitol Democrats say they are for working people, until it interferes with their ability to redistribute a chunk of the earnings of the people they say they care about, to the programs they care about.
How Workers Lose — and Employers Pay Too
The impact on workers is clear. A server, warehouse worker, or nurse who works overtime will still have to pay California income tax on wages that now get new federal deductions. After state and payroll taxes, the promised tax relief shrinks significantly, leaving workers wondering why the benefit is less than expected.
The effects also reach employers. When state taxes reduce the federal benefit, employers face greater pressure from higher wage demands, scheduling issues, and difficulty retaining staff. Meanwhile, California employers receive no break on their own state costs. Payroll taxes, regulations, and paperwork all stay the same.
This mismatch is significant in industries such as hospitality, retail, logistics, and healthcare, where profit margins are already thin. By failing to align with federal changes, the state creates a situation in which employers face higher labor costs but receive no cost relief, making it harder to hire, grow, or even keep their businesses running.
Oh, A Conundrum For The Guy Who Loves To Be Loved
This debate puts Governor Gavin Newsom in a tough political spot. He has worked to be seen as a leader who cares about working Californians and issues like affordability and fairness. Remaining silent while people debate whether tipped and hourly workers should keep more of their pay does not help that image, especially since federal relief is already in place.
President Trump and Congressional Republicans changed the tax code. The question now is whether California’s leadership will allow those workers to fully benefit, or quietly lose a portion of that expected gain due to state taxation. (You should call your elected representatives and ask them what they are doing on this issue.)
This puts Newsom in a familiar tough spot. If he supports adopting the federal changes, Sacramento would receive less funding, which would upset progressives. Newsom and his liberal allies still want as much tax revenue as possible to fund projects like high-speed rail, the jihad on anything that emits carbon, healthcare for illegal aliens, and other state priorities. Ultimately, staying silent is a choice, and voters notice when leaders prioritize government spending over workers’ pay.
So, Does It Matter?
When Congress gives targeted tax relief for work, it shows that effort and productivity are valued. When states do not follow, it sends a mixed message and confuses taxpayers who expect relief to apply everywhere.
California Democrats, under the leadership of ersatz President Gavin Newsom, are choosing to keep state revenue rather than pass targeted relief to workers and employers already struggling. This decision might help fund their extreme spending priorities, but it has real costs for paychecks, businesses, and trust in the system.