NJ
Does New Jersey tax tips and overtime?
The federal deduction and the New Jersey deduction are separate questions. Here is where New Jersey actually lands, and why.
How New Jersey builds its tax base
New Jersey calculates its own tax base rather than importing a federal figure, so the federal deduction never enters the computation at all. Any relief here is a state provision in its own right, with its own rules and limits.
Tips in New Jersey
Still taxedNew Jersey's Gross Income Tax is built on its own enumerated categories of income and a short closed list of deductions; it imports neither federal AGI nor federal taxable income, so no federal deduction flows through without separate GIT legislation. The Division of Taxation's OBBBA page states: "The New Jersey Gross Income Tax (GIT) has defined categories of income and deductions and is not computed based on federal adjusted gross income" and "Federal deductions under the federal OBBBA regarding overtime, tips, and senior citizens do not affect a taxpayer's New Jersey Individual Income Tax return." Tips remain fully taxable as wages/compensation. Bills to exempt tip income from the GIT have been introduced but none has been enacted.
Source: New Jersey Division of Taxation, "One Big Beautiful Bill Act and the New Jersey Gross Income Tax" · last reviewed
Overtime in New Jersey
Still taxedSame Division of Taxation guidance expressly names the OBBBA overtime deduction as having no effect on the New Jersey return; overtime premium pay stays fully taxable as wages under the GIT. Because New Jersey uses its own base rather than a federal starting figure, the §225 deduction cannot reach the state return absent an amendment to the GIT statutes, and none has been enacted.
Source: New Jersey Division of Taxation, "One Big Beautiful Bill Act and the New Jersey Gross Income Tax"; corroborated by NJCPA, "Division of Taxation Clarifies New Jersey Tax Impact of OBBBA" (Dec. 2025) · 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.