Anthony Du EA, Tax Advisor Services

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Does Oklahoma tax overtime pay and tips under OBBBA?

Yes, Oklahoma still taxes overtime pay and tips as part of its state income tax, as the federal deductions provided by the One Big Beautiful Bill Act (OBBBA) only apply to federal income tax liability, not state or payroll taxes. OBBBA Impact on Federal vs. State Taxes The OBBBA, signed into law on July 4, 2025, introduced temporary federal deductions for qualified tips and overtime pay for tax years 2025 through 2028. • Federal Income Tax: Eligible workers can deduct up to $25,000 in qualified tips and up to $12,500 in the premium portion of overtime pay ($25,000 for joint filers) from their federal taxable income. • Oklahoma State Income Tax: Oklahoma has not adopted a specific exemption related to the OBBBA provisions. Therefore, for Oklahoma state income tax purposes, both overtime pay and tips are considered taxable income and must be reported as usual. • Payroll Taxes: The OBBBA deductions do not affect federal payroll taxes (Social Security and Medicare), which still apply to the full amount of all wages, tips, and overtime pay.

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