NE
Does Nebraska tax tips and overtime?
The federal deduction and the Nebraska deduction are separate questions. Here is where Nebraska actually lands, and why.
How Nebraska builds its tax base
Nebraska 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 Nebraska
Still taxedNebraska taxable income is federal AGI as modified by Neb. Rev. Stat. §§77-2716 and 77-2716.01, less Nebraska's own standard or itemized deduction (Form 1040N line 5 is federal AGI). Because §224 is a below-the-line deduction, it never enters the Nebraska base. The Nebraska Department of Revenue's OBBBA report states: "The deductions for tip income, overtime income, and car loan interest are taken after the computation of the federal AGI and before calculating federal taxable income. Therefore, these deductions will have no automatic impact on Nebraska individual income tax receipts." LB932 (Sen. John Cavanaugh, introduced 1/9/2026) would have mirrored the federal $25,000 tip deduction, but the Revenue Committee never advanced it and it died when the biennium ended at sine die on 4/17/2026.
Source: Nebraska Department of Revenue, "Effects of the One Big Beautiful Bill Act on the State of Nebraska" (Sept. 2, 2025); Neb. Rev. Stat. §77-2716 · last reviewed
Overtime in Nebraska
Still taxedIdentical mechanism — the §225 overtime deduction is claimed on Form 1040 Schedule 1-A after AGI, and Nebraska's base is federal AGI, so nothing flows through. The same NDR report groups overtime with tips as having "no automatic impact on Nebraska individual income tax receipts." LB932 would have exempted up to $12,500 ($25,000 joint) of qualified overtime; it was not enacted and was indefinitely postponed at the close of the 109th Legislature's second session.
Source: Nebraska Department of Revenue, "Effects of the One Big Beautiful Bill Act on the State of Nebraska" (Sept. 2, 2025); Nebraska LB932 (109th Leg., 2026) — died in Revenue Committee · 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.