The One Big Beautiful Bill Act (OBBBA) made major changes to public programs and the federal tax code. It included about $4.5 trillion in tax cuts, with most of the benefits going to higher-income households. To help pay for those tax cuts, the law also reduced funding for health care and food assistance and shifted some federal costs onto the states.

The Congressional Budget Office found that the OBBBA’s program cuts and tax cuts will leave low-income households worse off. These families will lose more from the cuts to health coverage, food assistance, and other programs than they will gain in tax cuts.¹

Most of the tax changes overwhelmingly benefited the highest-income households. While there were some tax provisions that were targeted to benefit the middle class – like creating tax deductions for tipped income, overtime pay, and car loan interest payments – those provisions only accounted for 3 percent of the OBBBA’s total tax cuts.²

Key Takeaways:

• These new tax deductions for Idaho households apply to tax years 2025-2028.
• Most Idaho households will qualify for the increased standard deduction, but the average tax savings are small.
• Only a small share of households will qualify for new deductions for tips and overtime.
• The state is expected to collect less revenue due to these tax changes, which could make it harder to fund schools, roads, and other public services.

What is Tax Conformity?

States go through a process called tax conformity when federal tax law changes. When Congress changes federal tax law, states must decide whether to adopt those changes. This decision is called tax conformity. In some states, the process happens automatically. In Idaho, the legislature decides whether to adopt (conform to) or reject (decouple from) each new federal tax provision. For example, if Idaho conforms to a new federal personal income tax deduction, taxpayers can claim that deduction on both their federal and state tax returns. If Idaho does not conform, taxpayers can only claim that deduction on their federal tax return.³

The True Cost of OBBBA Tax Changes Remains Uncertain

This year, the Idaho Legislature passed House Bill 559 to adopt (or “conform to”) federal tax code changes in the OBBBA. The changes apply retroactively to the beginning of 2025. The bill’s fiscal note estimated that conformity would reduce state revenue by $155 million in FY 2026⁴ and $175 million in FY 2027.⁵ This estimate includes the cost of both corporate and personal income tax changes.

However, there remains uncertainty surrounding the total fiscal impact of conformity. Estimates from two independent organizations indicate that the personal income tax provisions alone could reduce state revenue by approximately $153 million to $168 million. These estimates are similar to—or higher than—the $155 million estimate used in the bill’s fiscal note, although the state’s estimate reflects the total cost of both personal and corporate provisions. These estimates suggest that the cost could exceed the $155 million amount used in the bill’s fiscal note, although that amount does fall within the Tax Commission’s broader estimate of $115 million to $192 million.

What is the Difference Between a Tax Deduction and a Tax Credit?

A tax deduction lets you subtract part of your income before your taxes are calculated. This lowers the amount of income you pay taxes on. A tax credit is different. Instead of lowering your taxable income, it directly lowers the amount of tax you owe. This can lower your tax payment or increase your tax refund.⁶

The OBBBA created several new tax cuts for Idaho households, including new tax deductions for tipped workers, overtime pay, and seniors. The OBBBA also increased the standard deduction. These new deductions will be available for Idahoans to claim in tax years 2025-2028. The OBBBA also created new corporate tax breaks that are permanent.

The following sections explain who qualifies for these new tax breaks and how much of these tax changes are expected to save Idaho families. While some provisions target middle- and upper-middle-income workers, relatively few households qualify.

Tax Break for Tipped Workers

Only about 2 out of every 100 Idaho households are expected to qualify for the new deduction for tipped workers. Workers who receive tips can subtract up to $25,000 from the tipped income they pay taxes on.⁷

The impact of this deduction will be small. One out of three tipped workers did not owe federal income taxes in 2022 because their incomes were so low.⁸ Since the provision is a deduction and not a credit, lowering these workers’ taxable income by $25,000 does not provide low-income workers a meaningful benefit.

For those who qualify, the average tax cut is equal to about one percent of their household income. Most of the benefits will go to the middle class.

Tax Break for Overtime Pay

About 5 out of every 100 Idaho households are expected to qualify for this deduction. It allows workers to subtract up to $25,000 of their overtime pay each year from the income they pay taxes on.⁹

Like the tipped income deduction, lowering these workers’ taxable income by $25,000 does not provide low-income workers a meaningful benefit.

For those who qualify for the deduction, the average tax cut is about one percent of their household income. Most of the benefits will go to upper-middle-income households.

Increased Standard Deduction

Most households will receive a slightly larger standard deduction. About two-thirds of Idaho’s households are expected to benefit from this change.

The standard deduction lowers the amount of income that you pay taxes on. It is adjusted each year for inflation and varies according to your filing status, whether you’re 65 or older and/or blind, and whether another taxpayer can claim you as a dependent.¹⁰ The Tax Cuts and Jobs Act increased the standard deduction for filers from $6,500 to $12,000 for individual filers and from $13,000 to $24,000 for joint filers. The OBBBA increased the standard deduction to $15,750 for single filers and $31,500 for married couples filing jointly.¹¹

Although many families will qualify, the tax savings are relatively small. On average, the increase is worth about $60 (0.1 percent of household income). Most of the tax savings from this provision will go to middle- and upper-middle-income families because they are more likely to qualify than the lowest-income households. High-income households are more likely to itemize their deductions.

Enhanced Tax Deduction for Seniors

Idaho seniors will qualify for an additional tax deduction. Households with seniors aged 65 and older can deduct up to an extra $6,000 from their taxable income in addition to the standard deduction.¹²

Fourteen percent of Idaho households are expected to benefit from this deduction. While many seniors who qualify will receive tax savings, the average benefit is relatively small, about 0.03 percent of their household income. Most of the benefits are concentrated in the upper-middle-income households.

Impacts on Idaho’s Budget and Public Services

Idaho’s decisions to cut income taxes and conform to federal tax changes since 2018 have significantly reduced the state’s long-term revenue. While these policies have reduced taxes for many households, the largest benefits have gone to those with the highest incomes, while low-income Idahoans have seen little benefit, or in some cases, tax increases.¹³

The latest tax changes in the OBBBA continue this trend. While some new tax breaks are aimed at middle-income workers, only a small number of households qualify. At the same time, the final cost of these changes remains uncertain. Cost estimates range from $115 million to $192 million annually, further reducing state revenue and straining the state’s budget.

These revenue losses have real consequences. Income taxes help pay for schools, roads and bridges, public safety, and services Idaho families rely on. When the state collects less revenue, lawmakers have less funding to invest in these services and respond to future needs.

As lawmakers consider future tax changes, it will be important to weigh the tradeoffs between reducing taxes and maintaining the state’s capacity to fund essential services. At a time when Idaho continues to grow, sustained revenue reductions raise concerns about the state’s ability to keep pace with increasing demands on schools, infrastructure, and public safety.

References

1. Congressional Budget Office (CBO). “How the 2025 Reconciliation Act (Public Law 119-21) Will Affect the Distribution of Resources Available to Households. August 11, 2025. https://www.cbo.gov/interactive/2025-reconciliation-act ↩︎
2. Duke, Brendan. “Republican Megabill Trades Essential Support to Low-Income People for Skewed Tax Cuts.” Center on Budget and Policy Priorities. February 11, 2026. https://www.cbpp.org/research/federal-tax/republican-megabill-trades-essential-support-to-low-income-people-for-skewed ↩︎
3. Idaho’s fiscal year (FY) runs from July 1^st through June 30^th. By making the tax changes retroactive to the beginning of tax year 2025 that runs from January 1^st to December 31^st, the revenue in tax year 2026 is impacted. Since the changes were retroactive, the Idaho Legislature appropriated an additional $550,000 to the Idaho Tax Commission in HB 871 to fast track the tax filing changes. For more information, click here. ↩︎
4. Idaho’s fiscal year (FY) runs from July 1^st through June 30^th. By making the tax changes retroactive to the beginning of tax year 2025 that runs from January 1^st to December 31^st, the revenue in tax year 2026 is impacted. Since the changes were retroactive, the Idaho Legislature appropriated an additional $550,000 to the Idaho Tax Commission in HB 871 to fast-track the tax filing changes. For more information, click here. ↩︎
5. The Idaho Tax Commission provided an estimated cost range between $115 million and $192 million. The fiscal note for HB 559 reflects the median estimate. ↩︎
6. “Credits and deductions.” Internal Revenue Service. https://www.irs.gov/credits-and-deductions ↩︎
7. “What the ‘No Tax on Tips’ deduction means for you.” Internal Revenue Service. https://www.irs.gov/newsroom/what-the-no-tax-on-tips-deduction-means-for-you ↩︎
8. Tedeschi, Ernie. “The ‘No Tax on Tips Act’: Background on Tipped Workers. The Budget Lab. June 24, 2024. https://budgetlab.yale.edu/news/240624/no-tax-tips-act-background-tipped-workers ↩︎
9. “What to know about the No Tax on Overtime deduction.” Internal Revenue Service. https://www.irs.gov/newsroom/what-to-know-about-the-no-tax-on-overtime-deduction ↩︎
10. “Credits and deductions for individuals.” Internal Revenue Service. https://www.irs.gov/credits-and-deductions-for-individuals ↩︎
11. “How did the TCJA and OBBBA change the standard deduction and itemized deductions?”. Tax Policy Center. https://taxpolicycenter.org/briefing-book/how-did-tcja-change-standard-deduction-and-itemized-deductions ↩︎
12. “Topic no. 551, Standard Deduction.” Internal Revenue Service. https://www.irs.gov/taxtopics/tc551 ↩︎
13. Roberts, S. May. “How Federal and State Tax Cuts Shift Costs onto Idaho Families and Communities.” Idaho Center for Fiscal Policy. June 2, 2026. https://idahofiscal.org/how-federal-and-state-tax-cuts-shift-costs-onto-idaho-families-and-communities/ ↩︎