How Federal Tax Law Changes Affect State Conformity and Your Return

Quick overview

Federal tax law changes — like the Tax Cuts and Jobs Act (TCJA) of 2017, later adjustments to business depreciation rules, or credit expansions — change the baseline federal taxable income and the Internal Revenue Code (IRC). States must decide whether to follow those federal changes. That decision is called “conformity.” Some states automatically adopt the IRC as written on a certain date (rolling or dynamic conformity); others adopt by statute only specific provisions or remain tied to an earlier version of the IRC (static conformity). The result: two taxpayers with similar federal outcomes can have different state results depending on where they live.

Why conformity matters

If your state conforms to federal changes, many federal adjustments flow through to your state return with minimal extra work. If it doesn’t, you may need to:

• Add back federal deductions the state disallows (increasing state taxable income),
• Make separate calculations for state-only tax treatment, or
• File amended state returns if a state later adopts a change retroactively.

These differences can change your state tax due, refund, and even eligibility for certain credits. For example, several states decoupled from federal bonus depreciation and Section 199A Qualified Business Income (QBI) rules after TCJA, creating different results for pass-throughs and small businesses.

(For an in-depth primer, see our glossary entry on State Tax Conformity.)

Types of conformity states use

• Dynamic (rolling) conformity: The state references the IRC as amended, usually as of the date the state tax code says. This makes state law follow federal changes without new state legislation. But it can create budget volatility.
• Static (fixed-date) conformity: The state references the IRC as of a specific date (for example, December 31, 2018). Subsequent federal changes require state legislative action to be adopted.
• Selective/partial conformity: The state adopts some federal provisions (e.g., the standard deduction change) but not others (e.g., SALT cap treatment).
• Decoupling: The state intentionally diverges from a federal provision (e.g., disallowing a federal deduction) and requires add-backs or different treatment. Read more on state decoupling in our Decoupling (State Taxes) article.

States choose these approaches based on budget priorities, policy goals, and administrative capacity. The National Conference of State Legislatures (NCSL) tracks these choices and provides up-to-date summaries (NCSL.org).

Common federal changes that trigger state decisions

• Standard deduction increases or changes to personal exemptions (TCJA example)
• SALT deduction limits and state responses
• Business provisions: bonus depreciation, Section 179, and QBI (Section 199A)
• Credits and refundable credit rules (e.g., Child Tax Credit changes)
• Retirement and IRA treatment (SECURE Act and SECURE 2.0 provisions)

After TCJA in 2017, many states responded differently: some adopted the federal changes quickly, others delayed, and several created add-back rules for business depreciation and other items. The IRS provides guidance on federal changes, while states publish conformity bulletins on their Department of Revenue (DOR) sites (see IRS.gov and your state’s DOR).

Real-world examples (typical scenarios)

• SALT cap: The $10,000 SALT limit (federal) led some states to create workarounds such as pass-through entity taxes, state tax credits, or adjustments. This is a clear example where state policy influenced taxpayers’ state filings even though the federal rule was fixed.
• QBI (Section 199A): Some states initially ignored QBI and required taxpayers to add back the federal deduction, increasing state taxable income; others later enacted conformity or partial fixes.
• Bonus depreciation/bonus first-year expensing: Several states decoupled because accelerated federal depreciation reduces state revenues; taxpayers often needed to add depreciation back on state returns.

How to know what your state did (practical checklist)

1. Check your state Department of Revenue website for a “conformity” or “federal tax law changes” notice. States often post a guidance memo or updated instructions each tax year.
2. Look for the state’s conformity method: dynamic, static, selective, or decoupled. This is usually in the statute or the state’s tax bulletin.
3. Review the state return instructions for additions or subtractions to federal adjusted gross income or taxable income. These line-item adjustments tell you how to reconcile federal and state rules.
4. If in doubt, search the state’s enacted tax legislation for the tax year in question; conformity dates are often in the statute’s text.
5. Consult a CPA or tax professional if you have business depreciation, large pass-through income, or if a state has retroactively adopted a federal change. See our guidance on Amending State Returns After a Federal Change.

What to do when a federal change is passed mid-year

• Review whether your state auto-adopts federal changes (dynamic conformity). If so, your state might already follow the new rule.
• If your state does not auto-adopt, anticipate a legislative process that could take months or longer. Watch for temporary guidance or DOR memos.
• Adjust withholding or estimated state tax payments only after confirming your state’s position. Overadjusting can create underpayment penalties or unnecessary prepayments.

When you might need to amend a state return

States sometimes adopt federal changes retroactively. If your state later conforms to a federal change for an earlier tax year, you may be able to file an amended return to claim a refund or correct tax liability. Time limits vary by state — commonly two to four years from the original filing or the date of assessment — so act quickly when a retroactive conformity is enacted.

Practical tax-planning tips

• Start annual tax planning with both federal and state rules in mind, especially if you live in high-tax states or operate a business across states.
• Track the state’s conformity method each year around the federal filing season. Changes are often publicized in January–April.
• If you expect large timing differences (depreciation, capital gains, QBI), model both state-conformed and non-conformed scenarios to estimate potential exposure.
• Keep clear records of any adjustments you make for state returns; this simplifies future audits and amendments.

Common mistakes to avoid

• Assuming state conformity is automatic. Many taxpayers incorrectly expect federal benefits to flow to the state level.
• Ignoring state-specific add-backs on business depreciation or itemized deduction differences.
• Waiting too long to check for retroactive state conformity that could allow an amended return and refund.

Sources and where to confirm updates

• Internal Revenue Service (IRS): https://www.irs.gov/ — for federal law changes and guidance.
• National Conference of State Legislatures (NCSL): https://www.ncsl.org/ — tracks state conformity and legislative responses.
• Your state Department of Revenue website — search for “conformity,” “IRC adoption,” or “federal tax law changes.”

Final notes from a practitioner

In my experience advising clients for 15+ years, states that adopt rolling conformity create less year-to-year compliance work for taxpayers but can surprise state budgets. States that selectively conform or decouple often do so to protect revenue or encourage policy goals, which shifts complexity to preparers. The prudent approach is to verify your state’s stance before finalizing withholding, estimated payments, or making large tax-driven moves.

Professional disclaimer: This article is educational and does not substitute for personalized tax advice. Tax rules change; consult a qualified tax professional and your state DOR for guidance tailored to your situation.

(Authoritative sources: IRS.gov; National Conference of State Legislatures.)