3. State Tax Conformity: A Hidden 2026 Retirement Tax Risk

Federal tax changes are only half the story. States decide whether — and how — to adopt new federal tax laws. In 2026, state tax nonconformity could create unpleasant surprises for retirees.

What is state tax conformity?

Some states automatically adopt federal tax changes. Others selectively conform — or don’t conform at all. Increasingly, states are rejecting portions of the 2025 federal tax law due to budget constraints.

Example: The senior bonus deduction at the state level

Let’s say you’re a 70-year-old single filer living in Virginia with $55,000 of taxable income.

• Federal return: $55,000 – $6,000 senior bonus = $49,000 taxable income
• Virginia state return: Senior bonus deduction not allowed → $55,000 taxable income

Same income. Two different tax bills.

Note: This is a simplified illustration. Actual tax outcomes depend on individual circumstances.

Why this matters more in 2026

More states are choosing partial or nonconformity, meaning retirees must manage two separate tax identities — one federal and one state. That adds complexity and increases the risk of under-withholding.