Does Oregon tax tips and overtime?

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

How Oregon builds its tax base

Oregon 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 Oregon

Deductible

ORS 316.048 defines Oregon taxable income as federal taxable income with modifications, and Oregon has rolling IRC conformity, so IRC 224 flows through by default. Publication OR-17 (150-101-431, Rev. 01-29-26), p. 70, 'Federal deduction for tip income (ORS 316.048) [Subtraction code 390]': 'Oregon allows the same deduction for tip income that is allowed on your federal return.' Full-year residents claim it on Schedule OR-ASC Section B, code 390; part-year residents use modification code 656; nonresidents use code 680 and are limited to tips received while physically working in Oregon (not multiplied by the Oregon percentage). Mechanism nuance worth flagging: Form OR-40 itself starts from federal AGI on its face, so Oregon delivers the statutory federal-taxable-income conformity through these explicit subtraction codes rather than automatically. SB 1507 (2026) partially disconnected Oregon from OBBBA but expressly preserved the tips and overtime deductions.

Source: Oregon Department of Revenue, 2025 Publication OR-17 (Oregon Individual Income Tax Guide), p. 70 — 'Federal deduction for tip income (ORS 316.048)', subtraction code 390 · last reviewed August 24, 2026

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Overtime in Oregon

Deductible

Same ORS 316.048 federal-taxable-income conformity. Publication OR-17 p. 70, 'Federal deduction for overtime wages (ORS 316.048) [Subtraction code 391]': 'Oregon allows the same deduction for overtime wages that is allowed on your federal return.' The 2025 Schedule OR-ASC/OR-ASC-NP Instructions (150-101-063-1, Rev. 10-07-25) open with: 'New federal deductions. You may be able to claim the same deductions for tip income, overtime wages, and passenger vehicle loan interest that you're claiming on your federal return. Form OR-40 filers: Claim the amount of your federal deductions as subtractions on Schedule OR-ASC.' Full-year code 391; part-year modification code 657; nonresident code 681, limited to the overtime portion of wages earned while physically working within Oregon. Oregon's DOR revenue forecast scored the qualified overtime deduction at roughly -$221 million, and SB 1507 (enacted Feb. 2026, effective TY2026) disconnected Oregon from certain other H.R. 1 provisions — business provisions and auto-loan interest — while keeping tips and overtime intact.

Source: Oregon Department of Revenue, 2025 Schedule OR-ASC and OR-ASC-NP Instructions (150-101-063-1) 'New information'; and Publication OR-17 p. 70, subtraction code 391 · last reviewed August 24, 2026

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Oregon overtime that does not qualify federally

Oregon has TWO significant state-only overtime mandates whose premiums are NOT FLSA overtime and therefore do NOT qualify for the IRC 225 deduction even though Oregon otherwise conforms. (1) ORS 652.020 — daily overtime: employees in mills, factories and manufacturing establishments must be paid 1.5x for hours worked beyond 10 hours in any one day (up to a 3-hour daily overtime cap). (2) ORS 653.272 — agricultural worker overtime: 1.5x above 55 hours/week in 2023-2024, above 48 hours/week in 2025-2026, and above 40 hours/week from 2027 onward; the FLSA exempts agricultural employees from overtime entirely (29 U.S.C. 213(b)(12)), so this entire premium is state-created. Publication OR-17 confirms the ag mandate and Oregon's related Agricultural Employer Overtime Tax Credit (ORS 315.133, credit code 901). Practical effect: an Oregon manufacturing worker paid daily overtime under the 10-hour rule, or a farmworker paid the 48-hour premium, cannot count that pay as qualified overtime under IRC 225 unless it also exceeded 40 FLSA hours in the workweek.

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.

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