Does Kentucky follow the federal no-tax-on-tips and overtime deductions?
DOES NOT CONFORM
Kentucky does not follow the federal deductions for state income tax. You can still claim the tips and overtime deductions on your federal return (Schedule 1-A) — they simply do not reduce your Kentucky state tax. Do not assume your state return treats this income the way your federal return does.
Verified against the official state source below — last verified October 26, 2026
| Deduction | Kentucky position |
|---|---|
| Federal tips deduction (IRC §224) | Does not conform |
| Federal overtime deduction (IRC §225) | Does not conform |
What the state itself says
"Any deduction allowed by 26 U.S.C. sec. 224 for qualified tips; (l) Any deduction allowed by 26 U.S.C. sec. 225 for qualified overtime compensation" — items (k) and (l) in the statutory list of deductions *excepted* (not allowed) in computing Kentucky net income.
- Official source
- 2026 Kentucky Acts, Chapter 161 (House Bill 757, enacted April 14, 2026), amending KRS 141.019(2)
- Tax years covered
- Taxable years beginning on or after January 1, 2026 (HB 757 conforms Kentucky to the IRC in effect Dec. 31, 2025 for those years, with the above decoupling). 2025 is also non-conforming — the prior conformity date predated OBBBA.
Fixed-date conformity + federal-AGI starting point + express statutory exclusion — the clearest decoupling in this register.
Your federal deduction is separate
Whatever your state does, the federal deductions run on their own rules: check your W-2 codes with the W-2 Code Checker, estimate with the Tips Calculator and Overtime Calculator, and see the glossary for any term. All state positions: the state-by-state index.
State position verified October 26, 2026 from the official source above. State guidance changes; confirm on the source before filing. This page is general information, not tax advice.