As of now, only eight states are projected to allow their residents to benefit from tax cuts included in President Trump's One Big Beautiful Bill Act by 2026, according to experts. The Act exempts federal taxes on tipped wages and overtime pay; however, state taxes on this income remain applicable unless state leaders decide to act.

Democratic-led states such as New York, Illinois, and California have not yet extended state-level tax breaks, citing potential budget shortfalls amounting to billions of dollars. Other states, both Democratic and Republican, have not indicated whether they will introduce legislation in the upcoming year to align their tax codes with federal definitions of taxable income. New Jersey has shown some openness to adopting provisions that would exempt tipped workers from state taxes.

Treasury Secretary Scott Bessent recently criticized several blue states, including Illinois and New York, for allegedly obstructing the implementation of the One Big Beautiful Bill Act provisions, which are set to take effect on January 1. These provisions include exemptions for tips received by service industry workers, overtime pay for certain laborers, and a new tax deduction for seniors reliant on Social Security.

Tax experts have countered Bessent's claims regarding Colorado, clarifying that the state operates under a system of 'rolling conformity' that automatically aligns its tax code with the Internal Revenue Code. This means that most tax cuts from the One Big Beautiful Bill Act are incorporated into Colorado's tax code unless specific actions are taken to decouple from them.

States that automatically conform to the federal tax code include South Carolina, Iowa, North Dakota, Idaho, Montana, and Oregon. Michigan, under Democratic Governor Gretchen Whitmer, is the only state to have adopted the tax breaks for overtime wages and tips thus far, while states like Kentucky and North Carolina are considering similar proposals.

Currently, South Carolina, North Dakota, Montana, and Idaho fully conform to Trump's tax breaks on qualified tips, car loan interest, overtime pay, and the enhanced deduction for seniors. Oregon and Iowa will conform to three of these provisions, excluding the senior benefit, while Colorado will maintain the senior benefit but not the overtime pay deduction.

Experts note that there are valid reasons for the majority of states not to automatically conform to federal tax breaks. The evaluation of these provisions is often intertwined with state budget considerations, and many states may choose not to adopt them due to their economic implications. For instance, New York is projected to lose approximately $1.7 billion if it conforms to these tax breaks.

A spokesperson for New York Governor Kathy Hochul indicated that the state will continue to explore ways to provide financial relief to residents and will assess federal changes in the context of the upcoming budget. California's Governor Gavin Newsom has expressed opposition to the One Big Beautiful Bill Act, while Illinois Governor JB Pritzker's office did not respond to inquiries regarding the state's position.