Nov 7, 2025
Imagine getting a government budget passed with bipartisan support and no shutdown, featuring tax cuts President Donald Trump campaigned on — eliminating income tax on tips, overtime pay and Social Security benefits.
Nirvana? No, Michigan.
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In October, Gov. Gretchen Whitmer, a progressive state Democrat, worked with colleagues across the aisle to pass the fiscal year 2026 (FY26) state budget.
“We were able to get it done in a really hard political climate nationally to show that Michigan could get it done,” she said at a signing ceremony. (1)
The state legislation includes tax cuts Trump has promoted in the past. For the next three years, Michigan will eliminate its 4.25% income tax on overtime, tips and Social Security. (2)
Whitmer described the tax cuts as a “game changer” that will help regular people finding it hard to get by. Here’s a look at who will benefit.
Tax breaks for hundreds of thousands
Whitmer’s office estimates more than 800,000 Michigan residents stand to gain, including:
- 500,000 workers (including those in construction, manufacturing, health care, public safety and food service) who work overtime, each saving an average $500 in taxes..
- 300,000 people (including servers, bartenders, delivery drivers and more) who will save an average $400. Whitmer said that tip money can mean the difference between missing rent or buying fresh vegetables or fruit.
- 40,000 seniors who will save an average $500 a year thanks to the elimination of state taxes on Social Security benefits. (paid ss taxes deserve to see more of their benefits
Many seniors are also eligible for other exemptions that greatly reduce their tax burden within the state, according to nonprofit news organization Bridge Michigan. (3)
Meanwhile, an estimated 650,000 families will benefit from the newly expanded Michigan Earned Income Tax Credit for Working Families, targeted to middle- and lower-income households.
The credit will not only reduce the amount of taxes families owe going forward but is also retroactive to 2022.
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That means they may get an average tax refund of more than $3,000 based on taxes they paid in the past three years. (4)
While Trump talked about completely eliminating income taxes on overtime, tips and Social Security on the 2024 campaign trail, he hasn’t achieved those aims in his signature One Big Beautiful Bill Act (OBBBA).
Instead, Trump’s legislation allows for some tax deductions, with certain conditions. The Tax Policy Center think-tank estimates:
- only 9% of American households will enjoy reduced federal income tax on overtime pay, with an average savings of $130.
- only 3% of American households will benefit from federal tax deductions on tipped income, with an average tax savings of $40
- 50% of seniors aged 65 and older will benefit from a new $6,000 federal tax deduction. (5)
Still, these federal tax cuts have two things in common with the Michigan bill: they’re available for a limited time — specifically 2025 through 2028 — and popular with voters.
In fact a Wall Street Journal poll found that while Trump’s Big Beautiful Bill was unpopular with 52% of voters, the policies reducing taxes on tips, overtime and seniors were popular. (6)
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So what do you do if you make overtime wages, get tips or collect Social Security and don’t live in Michigan? A lot of it does boil down to geography. Location, location, location … and income tax As the Michigan legislation demonstrates, income taxes vary by state — along with tax exemptions, credits and deductions.
State taxes on overtime wages. Alabama has eliminated state taxes on overtime wages. New Jersey, Pennsylvania and Rhode Island are contemplating doing the same. (7)
State taxes on tips. Illinois, Massachusetts, New Jersey, New York, North Carolina, Oregon and Pennsylvania are all considering eliminating state income tax on tips. (8)
State taxes on Social Security. Only nine states will be taxing social security benefits in 2025: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia. (9)
If you want to avoid state income taxes altogether, you could move to Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. None of those states levies state income taxes.
Regardless of where you live, consider hiring a local tax expert or financial planner to help you navigate your state’s rules along with federal rules so that you can optimize your tax bill.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
WDIV Channel 4 Detroit (1); Bridge Michigan (2, 3)); Governor Gretchen Whitmer (4); Tax Policy Center (5); Wall Street Journal (6); Thomson Reuters (7); Kiplinger (8); Empower (9)
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
