The federal "One Big Beautiful Bill" (signed July 2025) provides a deduction for up to $25,000 in qualified tips from federal income tax through 2028. States, however, control their own income taxes and can choose not to conform. Several, including California, New York, Illinois, Colorado, Maine, and DC, have opted to keep taxing tips at the state level. Yes, this is legal, as state tax policies are independent of federal ones.