DC
Does District of Columbia tax tips and overtime?
The federal deduction and the District of Columbia deduction are separate questions. Here is where District of Columbia actually lands, and why.
How District of Columbia builds its tax base
District of Columbia starts from your federal adjusted gross income. Both deductions are below-the-line — they reduce federal taxable income but leave AGI untouched — so neither reaches this state's return automatically. Anything you get here had to be legislated separately.
Tips in District of Columbia
Still taxedD-40 Line 4 starts from federal AGI, but DC also has rolling conformity to the IRC for deductions, which is why the §224 deduction would have flowed through absent affirmative action — and DC acted. D.C. Law 26-89 (from the D.C. Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025; companion emergency act D.C. Act 26-214, Dec. 3, 2025) added D.C. Code § 47-1803.04(d)(6), disallowing 'Any deduction allowed for qualified tips under § 224 of the Internal Revenue Code of 1986,' retroactive to Jan. 1, 2025. Congress disapproved the temporary act via H.J. Res. 142 (Pub. L. 119-78, signed Feb. 18, 2026) and the DC Attorney General disputes its timeliness under the Home Rule Act — but OTR's own current filing instructions resolve the practical question: 'The District does not allow the following federal schedule 1-A Additional Deductions: No Tax on Tips; No Tax on Overtime; No Tax on Car Loan Interest; and the Enhanced Deduction for Seniors. This means you cannot claim these deductions on your DC Individual D-40 Income Tax return even if you claimed them on your federal return.' CAVEAT for TY2026+: the temporary law expires on/about Sept. 25, 2026, and OTR has signaled it will administer TY2026 and later consistent with OBBBA — so DC is likely to re-conform for 2026 unless the Council acts again. Re-verify before relying on this for a 2026 return.
Source: DC Office of Tax and Revenue, 2025 D-40 Individual Income Tax Booklet (rev. 08/2026), 'What's New' — Federal Schedule 1-A Additional Deductions; codified at D.C. Code § 47-1803.04(d)(6) via D.C. Law 26-89 · last reviewed
Overtime in District of Columbia
Still taxedSame act, adjacent paragraph: D.C. Code § 47-1803.04(d)(7) disallows 'A deduction allowed for qualified overtime compensation under § 225 of the Internal Revenue Code of 1986,' effective retroactively to Jan. 1, 2025. OTR's 2025 D-40 booklet lists 'No Tax on Overtime' among the federal Schedule 1-A deductions the District does not allow. The DC CFO estimated the overtime decoupling alone at roughly $77.8 million of FY2026-2029 revenue. The same TY2026 caveat applies: absent new Council action, the temporary act lapses around Sept. 25, 2026 and OTR has indicated TY2026 will be administered consistent with OBBBA. The congressional-disapproval dispute over H.J. Res. 142 / Pub. L. 119-78 remains unresolved in court but has not changed how OTR is processing tax year 2025 returns.
Source: D.C. Law 26-89, adding D.C. Code § 47-1803.04(d)(7); DC OTR 2025 D-40 Booklet (rev. 08/2026) · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.