Does Vermont follow the federal no-tax-on-tips and overtime deductions?
DOES NOT CONFORM
Vermont 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 Vermont 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 | Vermont position |
|---|---|
| Federal tips deduction (IRC §224) | Does not conform |
| Federal overtime deduction (IRC §225) | Does not conform |
What the state itself says
- Official source
- Office of Legislative Counsel memorandum, "Reconciliation Act of 2025; Tax and Finance Sections" (Kirby Keeton, Dec. 19, 2025), Vermont Legislature site Ways and Means/2026 Federal Tax Impacts/W~Kirby Keeton~Reconciliation Act of 2025, Tax and Finance Sections, memo~1-6-2026.pdf ; VT Department of Taxes OBBBA page
- Tax years covered
- 2025 onward.
Vermont uses fixed-date conformity (32 V.S.A. §5824); Act 164 (H.933) of 2026 retroactively updated conformity for TYs beginning on/after Jan. 1, 2025 (conforming to many H.R. 1 changes, decoupling from several business provisions) — but Vermont computes individual tax from federal AGI, so the below-the-line deductions still do not flow through, and no separate subtraction was enacted. The Department's 2025 Federal Conformity Supplement addresses only §§174A, 168(n) and 250.
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.