As Maine continues to grapple with fallout from the Gateway Communities scandal and other nonprofit controversies, Gov. Janet Mills has quietly blocked a slate of worker- and senior-focused tax relief measures approved by Congress in 2025, leaving Mainers paying more in state taxes even as federal taxes fall.
Earlier this year, Congress passed the One Big Beautiful Bill Act (OBBBA), a sweeping tax reform package designed to ease the burden on working families, seniors, and small businesses. The law excludes tip income from taxation, allows deductions for overtime premiums, adds a $6,000 deduction for seniors, provides deductions for car loan interest, and increases the standard deduction. All provisions apply retroactively to January 1, 2025.
Under OBBBA, car buyers can deduct qualifying interest paid on auto loans from their federal taxable income, reducing the amount they owe to the IRS. That relief applies whether the vehicle is used for work, family transportation, or daily commuting. However, because Maine has not adopted the federal changes, that same interest remains fully taxable at the state level.
But unless Maine acts, those same forms of income and deductions recognized by the federal government remain subject to state taxation.
Maine operates under “static conformity,” meaning the Legislature must vote each year to adopt federal tax changes. Because OBBBA passed after Maine’s most recent conformity date, the tax relief is not currently recognized in state law. Normally, that would be a timing issue.
This year, however, lawmakers gave the governor a workaround.
Under L.D. 221 (Public Law 2025, Chapter 336), which took effect September 23, the Legislature granted Mills temporary authority to direct Maine Revenue Services to administer state taxes using new federal rules until lawmakers could formally update the tax code in 2026. The law was designed to prevent double taxation and filing chaos.
Mills declined to use that authority.
In a formal “Determination and Direction” to the state tax assessor, the governor refused to temporarily conform Maine’s tax system to OBBBA. The result: tips remain taxed, overtime pay remains taxed, and new deductions for seniors, car buyers, and other taxpayers do not apply to Maine returns for 2025.
The decision guarantees that Mainers will file under two conflicting tax systems, one federal, one state, using different rules for the same income.
Because of the refusal, waitstaff and bartenders will continue paying state income tax on federally exempt tips. Tradesmen, healthcare workers, and other hourly employees will lose the overtime deduction on their Maine returns. Seniors will miss out on the $6,000 deduction at the state level. Car buyers will receive federal tax relief for interest paid on auto loans, but none from Augusta.
The law Mills declined to use required future legislative action to make any changes permanent, and without that follow-up, temporary conformity could be reversed. Still, by refusing to act, Mills ensured that no relief would apply at all in 2025, regardless of federal law.
The Legislature passed the temporary authority without a roll-call vote, and it remains unclear whether lawmakers anticipated the confusion created by refusing to align with federal changes. Lawmakers can still act in 2026 to retroactively conform Maine’s tax code before the April filing deadline. They will not likely not do, unless they hear from their angry constituents.
Until then, Maine taxpayers are stuck paying more, not because federal law requires it, but because the Janet Mills chose not to use the authority she was given.
