Does Idaho tax tips and overtime?

The federal deduction and the Idaho deduction are separate questions. Here is where Idaho actually lands, and why.

How Idaho builds its tax base

Idaho starts from your federal taxable income, a figure these deductions have already reduced. That means they flow through automatically, with no state legislation required — unless the state deliberately decouples.

Tips in Idaho

Deductible

Idaho Code §63-3011B defines taxable income as "federal taxable income as determined under the Internal Revenue Code," but Idaho uses static/annual conformity (the legislature must adopt each year's federal changes), so OBBBA did not flow through automatically; House Bill 559 (2026), signed by Gov. Little on Feb. 10-11, 2026 and made retroactive to Jan. 1, 2025, conformed Idaho to the OBBBA and created state deductions for qualified tips for TY2025-2028, claimed on Form 40 line 18 (Form 43 line 40 for part-year/nonresidents) with no new form lines added.

Source: Idaho State Tax Commission press releases on 2026 conformity ("Update on filing 2025 Idaho income taxes now that conformity is law"; "More guidance on conformity deductions...", Mar. 4, 2026), as reported by KMVT and the Post Register; Idaho Code §63-3011B. NOTE: tax.idaho.gov and legislature.idaho.gov were network-unreachable from this environment, so the ISTC releases and HB 559 text were verified through reporting rather than fetched directly. · last reviewed August 24, 2026

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Overtime in Idaho

Deductible

Same vehicle: HB 559 (2026) conformed Idaho to IRC §225, allowing the FLSA overtime premium (up to $12,500, or $25,000 married filing jointly) to be deducted from Idaho taxable income for TY2025-2028, retroactive to Jan. 1, 2025 and claimed on Form 40 line 18; taxpayers who filed before the March 2026 form update may need to amend.

Source: Idaho State Tax Commission conformity press releases (Feb.-Mar. 2026) as reported by KMVT (Mar. 4, 2026) and Bander Wealth Management; Idaho HB 559 (2026), signed Feb. 10, 2026. Same fetch limitation as above. · last reviewed August 24, 2026

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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.

This entry rests on a reputable secondary source rather than a Idaho revenue department publication or an enacted bill. Treat it as reliable but confirm before you file.

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