General information only. Not tax, legal or investment advice. A planning idea named here is not a recommendation for any person. Prem Tax and Accounting Corp is a CPA firm, not a law firm. Tax rules change often and figures are for the tax year shown: confirm with the official source or a qualified adviser before you act. Read the full notice. Book a 10-minute call.

Current Topics

Where the new tax law leaves gaps: Illinois, other states and the IRS

A federal deduction does not always reach your state return, and the IRS has not finished every rule. Here is Illinois first, a few other states, what is still pending and how we talk about it.

Prepared by Prem Tax and Accounting Corp. Last reviewed November 6, 2026. Figures as of November 6, 2026.

Federal and state tax law are two different books, and the IRS is still writing parts of the federal one. The Settled-Waiting-Watching Trio is how we explain where each rule of the 2025 tax act known as the One Big Beautiful Bill Act, Public Law 119-21, stands. Our state taxes page covers the basics.

The short version

Illinois starts from federal adjusted gross income (AGI). The senior, tips, overtime and car-loan deductions come after AGI, so none lowers Illinois income.
Tips and overtime stay taxed in Illinois at 4.95%. House Bill 4877 would change that, but it is not law.
Some states wrote their own versions, with different caps and years.
Several IRS rules are still interim, proposed or FAQ-only.

Illinois first

Illinois follows the federal Code each year unless its statute adds or subtracts something.
House Bill 4877 would create Illinois subtractions for tips and overtime. It has sat in the House Rules Committee since March 27, 2026.
Illinois has added back federal bonus depreciation since 2001 and adds back the new production-property allowance from 2026.
We found no Illinois addback for section 179 or domestic research costs in the statute, and the Illinois Department of Revenue has not named either.

A few other states (November 6, 2026)

State	Starts from	The four deductions
Illinois	Federal AGI	None; tips and overtime taxed
New York	Federal AGI	Own tips subtraction up to $25,000 from 2026 (Chapter 59 of 2026, Part B)
Michigan	Federal AGI	Own tips and overtime deduction, 2026 to 2028
Indiana	Federal AGI	Own tips, overtime and car-loan deductions, 2026 only

A state that starts from federal taxable income, not AGI, can pick the deductions up automatically. Other states differ again, so check yours.

What the IRS has not finished

Final rules exist for tips, payment-app backup withholding and car-loan interest (effective November 9, 2026).
Bonus depreciation and production property have interim notices only. Overtime has a notice for 2025 and FAQs, but no regulations.
Rules for the $2,000 Form 1099-NEC and 1099-MISC threshold and the 1% remittance tax are still proposed.
The state and local tax (SALT) cap and pass-through entity taxes are not on the 2026-2027 guidance plan. The plan has 121 projects and no deadlines, and it can change.

The Settled-Waiting-Watching Trio

Label	Meaning	What we do
Settled	Written in the law or in final rules	Plan on it
Waiting	Interim notices, proposed rules, FAQs	Follow the law's text, keep records, say what would change the answer
Watching	Bills and state proposals	Tell you they exist; we do not predict

An invented example

A single Illinois resident has 2026 federal AGI of $52,000, including $10,000 of qualified tips. Illinois starts from $52,000. After the $2,925 exemption, net income is $49,075 and tax at 4.95% is $2,429.21. If a tips subtraction like HB 4877 ever became law, tax would be $1,934.21, or $495 less. It is not law today.

Common questions

Why did my state not follow the federal deduction?

Many states start from AGI, and these four deductions come after AGI. A state must write its own version, and several did.

Can I rely on an IRS FAQ?

An FAQ is not law, and the law controls if they differ. Reasonable, good-faith reliance can protect against penalties that have a reasonable-cause test. See [how to read cases and rulings](/current-topics/cases/how-to-read-tax-cases/).

Could the IRS change a rule later?

Yes. Regulations issued within 18 months of the law, about January 4, 2027, can reach back to earlier periods. See [how we track changes](/current-topics/obbba/tracking-tax-changes/).

Official sources

Keep reading

Please read: general information only

This page gives general information and education about current federal and state tax topics, including recent legislation, planning ideas, retirement and annuity rules, and court decisions. It is not tax, legal, accounting, investment, insurance or other professional advice, and it is not a substitute for advice from a qualified CPA, attorney or other adviser who knows your facts. Reading it does not create a CPA-client or any other professional relationship with Prem Tax and Accounting Corp. Prem Tax and Accounting Corp is a CPA firm, not a law firm. It does not sell insurance or investment products, and it does not recommend, rate or sell any annuity, fund or other product. A planning idea, a strategy name or an example here is not a recommendation to take or avoid any action.

Tax rules, thresholds, rates and deadlines change often, and Congress, the IRS, the courts and the states change how they apply them. Guidance on recent legislation is still being issued. We checked the figures against the official sources named on the page on the date shown (last reviewed November 6, 2026), but we do not promise that this page is complete, current or free of errors, and we do not update it the moment a rule changes. Where the rules are unsettled or guidance is still pending we say so. Amounts for a future year are labelled planning figures until the IRS or another agency publishes them. Examples use invented numbers and are for illustration only.

To the fullest extent the law allows, Prem Tax and Accounting Corp and its owners and staff are not responsible for any loss or decision that results from using this page. Links to government and other websites are for convenience and we do not control them.

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Questions about how the new tax law or your year-end moves apply to you? Keshav Agrawal is a U.S. CPA and a Chartered Accountant (CA) from India. We prepare U.S. and Illinois returns, plan with you, and work alongside your financial adviser, insurance agent or attorney. We sell no investment or insurance products. Book a 10-minute call or send us a message.

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