Does Delaware tax tips and overtime?

Delaware's Division of Revenue addresses this head-on in its official tax season guidance: 'Delaware conforms with Federal Adjusted Gross Income (AGI) and with federal definition of Itemized Deductions... OBBBA deductions for no tax on tips, overtime, and car loan interest are not defined federally as itemized deductions and will not flow through to the Delaware Personal Income Tax.' Delaware's two conformity hooks are federal AGI and federal itemized deductions; the §224 tip deduction is neither (it is a Schedule 1-A below-the-line deduction available to itemizers and non-itemizers alike), so it falls through both hooks and never reduces Delaware taxable income. Delaware did enact HB 255 to decouple from other OBBBA items (retroactive R&D expensing, 100% bonus depreciation, QPP depreciation), but took no action to grant the tip deduction. HS1 for HB 386 (Tipped Worker Tax Relief Act of 2026) would create a separate Delaware tip deduction/credit; it cleared House Revenue & Finance 4-3 on June 18, 2026 but was not enacted, and in any event would be a state-designed benefit rather than §224 conformity.

Same sentence of Division of Revenue guidance covers overtime expressly: the OBBBA deductions for 'no tax on tips, overtime, and car loan interest' are 'not defined federally as itemized deductions and will not flow through to the Delaware Personal Income Tax.' Delaware's base starts at federal AGI, which §225 does not reduce, and Delaware's other conformity hook (federal itemized deductions) does not capture it either. For contrast, Delaware DID pick up the OBBBA $40,000 SALT cap increase for TY2025, because that one runs through itemized deductions — which confirms the mechanism rather than a blanket rejection. SB 299 (Richardson/Shupe), a proposed $15,000 Delaware overtime tax credit, was still sitting in Senate Elections & Government Affairs as of May 5, 2026 and was not enacted.