The Washington D.C. Council has passed an emergency tax bill to “decouple” parts of its tax code from recent federal tax changes, which were introduced through President Donald Trump’s One Big Beautiful Bill Act (OBBB), preventing tax breaks for tips and overtime pay, along with other deductions.
Why It Matters
This decision to block tax breaks on tips and overtime pay will affect thousands of hospitality workers in D.C., who often depend on tips and overtime pay to supplement their base wages, as these earnings will remain fully taxable under local law.
What To Know
The D.C. City Council voted to decouple elements of the District’s tax code from federal law, rejecting 13 of 84 new tax-related provisions under the OBBB.
Under the federal law, hospitality and service workers could deduct up to $25,000 in tips and $12,500 in overtime pay for single filers (with higher amounts for joint filers). Through the decoupling, D.C. residents who qualify for these deductions will not see those savings reflected on their local income tax returns.
The Council also eliminated the $6,000 local senior bonus deduction and other business-related tax breaks as part of an emergency legislative package aimed at stabilizing the District’s finances.
The district of Columbia is expected to have a more than $1 billion revenue shortfall over the next three years, according to the D.C. Fiscal Policy Institute, driven by the loss of roughly 40,000 federal government-related jobs, slower economic growth, and rising costs for social programs. By rejecting 13 of 84 new federal tax provisions, the Council expects to save millions of dollars in revenue that would have been lost if it had adopted the federal tax deductions for tips, overtime pay, and other breaks.
The Council says it will direct some of the savings made toward funding local priorities, including a new $1,000-per-child tax credit for eligible families and the matching of the Earned Income Tax Credit to 100 percent of the federal level.
What People Are Saying
In its official statement, the D.C. Council said: “At our most recent Legislative Meeting, the Council voted on an emergency basis to decouple elements of the District’s tax code from the federal, following Congress’ passage of the so-called One Big Beautiful Bill Act (OBBBA). In doing so, and in light of revised revenue estimates by the District’s Chief Financial Officer (CFO), the Council also voted to dedicate a portion of the newfound revenue to two purposes: an accelerated full local match for the federal Earned Income Tax Credit (EITC) and the establishment of a local child tax credit of $1,000 per child for eligible families.”
What Happens Next
The D.C. Council’s emergency amendment applies for 90 days, with a planned temporary extension of 225 days. A permanent measure will require further Council votes and potentially more public input, but for now, D.C. taxpayers should expect that the tip and overtime tax breaks available on their federal returns for 2025 will not be reflected in local returns.
