In mid-2025, Congress passed the One Big Beautiful Bill Act (OBBBA), a comprehensive federal tax reform measure designed to alleviate the burden on working families, seniors, and small businesses. Its numerous provisions include the following:
- Exclusion of tip income
- Deduction for overtime premiums
- $6,000 additional deduction for seniors
- Car loan interest deduction
- Increased standard deduction
All of these changes apply retroactively to January 1, 2025, but unless Maine acts, state taxes will still apply to those same forms of income.
Until recently, that was a straightforward issue of legislative timing. Maine uses static conformity to federal tax law, meaning the state must pass a law each year to adopt any federal changes. Because OBBBA passed in 2025, after Maine’s current conformity date, these tax breaks are not yet recognized in state law. So far, that’s normal. But a law passed earlier this year changed everything.
What Changed: New Law Gives Mills Temporary Power to Conform
Under L.D. 221 (Public Law 2025, Chapter 336), a law that went into effect on September 23, the Legislature gave Governor Mills authority to temporarily conform Maine tax administration to recent federal changes before the Legislature formally updates the tax code.
This law allows her to:
- Direct Maine Revenue Services (MRS) to administer the 2025 tax year using federal rule changes
- Change Maine tax policy temporarily when the legislature hasn’t had the opportunity to act yet
- Do so contingent on future legislative action in 2026 to make the change permanent
The goal of this was clear: prevent unfair double-taxation and mid-season filing chaos by giving the Governor a short-term tool to bridge the gap between federal reform and state legislative action.
What Happened: Governor Mills Refused to Act
Governor Mills had the power in this scenario, and she chose not to use it. Despite calls to mirror OBBBA’s worker-focused tax relief, Mills issued a “Determination and Direction” to the State Tax Assessor formally declining to use her new authority. That means:
- Tips will still be taxed at the state level, even though they’re tax-free federally.
- Overtime premiums will still be taxed, despite clear federal guidance.
- The new deductions won’t apply to state taxes in 2025, unless the Legislature acts next year.
Why Would Mills Say No?
We can’t know her exact internal reasoning, but the law makes clear that she could have acted. A likely explanation is political: Mills doesn’t believe Maine’s Democratic Legislature will follow through with permanent conformity in 2026, meaning any changes she makes this year would be retroactively repealed.
The law she declined to use requires later legislation to finalize any relief, and if she’s skeptical that will happen, she may see temporary conformity as risky or misleading. But in doing so, she’s guaranteeing that Mainers will not get relief on their 2025 state taxes, even if they’re entitled to it federally. This means that Mainers filing in 2025 will confusingly have OBBBA changes made to their standard deductions and other federal tax changes – but only to their federal tax filings – while their Maine filing will still use standard deduction rules from 2024.
Should Gov. Mills have Acted?
This new law grants considerable discretion to the governor, even if it is a temporary power. Maine law, with few exceptions, outlines the state’s tax policy, and this new law has introduced a significant amount of confusion and chaos. If Gov. Mills had decided to comply, then Mainers’ tax returns would have had to tell them that, contingent on legislative action, one of two potential tax systems would have applied. While retroactive application of taxes can generally create chaos, this contingent tax enforcement system risks creating even further and more drawn-out confusion among Maine taxpayers.
This bill passed last session without a roll-call vote, and it’s unclear whether the legislature realized the confusion this might cause if the state refuses to comply with the new, controversial federal tax laws. Regardless, the legislature might still act in 2026 to retroactively comply for both future years and tax year 2025.
What’s At Stake?
Because of Mills’ refusal:
- Waitstaff and service workers will pay state income tax on federally exempt tips.
- Hourly tradesmen and healthcare workers will lose the overtime deduction on their Maine state tax returns.
- Seniors won’t get the extra $6,000 deduction, though the deduction change will still apply to their federal income tax filings.
- Car buyers and new homeowners will miss major tax credits from the state, but will still receive them from the federal government.
Maine taxpayers will be stuck navigating conflicting federal and state tax systems, unless the Legislature acts quickly in 2026.
What Now?
The Legislature can still fix this in 2026 by passing retroactive conformity before the April filing deadline. But that’s now the only path left open because the Governor declined to use the contingency authority she was given by the Legislature.
Gov. Mills’ refusal to act has left Maine taxpayers in limbo, stuck between two conflicting tax codes, with working-class Mainers bearing the brunt of her decision. By choosing not to use her new powers, Mills has increased the chances that Maine’s tipped workers, overtime earners, seniors, and first-time buyers will pay more than they should, not because federal law demands it, but because she declined to match it.
The Legislature still has a chance to fix this retroactively in 2026, but it seems Gov. Mills is already predicting lawmakers won’t act, or that she will be actively working to ensure Maine does not fully conform to the new federal tax changes.
