You’ve probably heard the rumors or seen the heated headlines about Maine’s tax code lately. It’s a mess. Honestly, if you're sitting at your kitchen table trying to figure out why your federal refund looks great but your state return feels like a punch in the gut, you aren't alone. The tension surrounding Janet Mills federal taxes policy isn't just political theater; it’s hitting the wallets of waitresses, plumbers, and retirees across the Pine Tree State right now.
Basically, the federal government passed a massive piece of legislation called the One Big Beautiful Bill Act (OBBBA) in July 2025. It changed everything. It made tips tax-free at the federal level, gave huge deductions for overtime, and handed seniors an extra $6,000 deduction. But here's the kicker: Governor Janet Mills decided not to let Maine follow suit for the 2025 tax year.
Because of that choice, Mainers are living in two different worlds. One where the IRS says "keep your money," and another where Maine Revenue Services says "pay up."
The Reality of Janet Mills Federal Taxes and the "Decoupling" Drama
When people talk about Janet Mills federal taxes, they are usually referring to "conformity." This is a boring accounting word that has massive real-world consequences. Usually, Maine tries to match its tax rules to the federal ones so filing is easy. You take your federal numbers, plug them into the state form, and you’re done.
Not this time.
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In late 2025, the Maine Legislature actually gave Governor Mills the power to temporarily match the new federal tax breaks. She had the pen in her hand. She could have signed an order making tips and overtime tax-free for state taxes, too. Instead, she issued a "Determination and Direction" that said no.
Why did she say no?
The administration’s argument is purely about the bottom line. Commissioner Kirsten Figueroa and the Governor’s office claim that fully matching the federal tax cuts would cost the state budget over $400 million. They call it "foregone revenue." To them, that's money that pays for schools and roads.
Critics, like the Maine Policy Institute, say that’s a narrow way to look at it. They argue that when you stop taxing tips and overtime, people work more. They spend more. That money circles back into the economy. But for now, the Governor is sticking to a "static" budget model. She’s worried that if she gives the tax break now, and the Legislature doesn’t make it permanent in 2026, the state will be left with a massive hole in its pocket.
Who Gets Hit the Hardest?
It’s not the "millionaires" that the Governor often talks about taxing more. The refusal to conform to the federal OBBBA hits specific groups of regular people.
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- Service Workers: If you’re a server in Portland or Bangor, your tips are now federally tax-exempt. That’s huge. But on your Maine 1040ME, those tips still count as fully taxable income.
- Blue-Collar Overtime: Love those extra hours? The federal government is letting you keep more of that overtime pay. Maine? Not so much.
- Seniors: The new $6,000 federal senior deduction is a phantom in Maine. You get it on your federal return, but you lose it the moment you start your state filing.
- Small Businesses: While Mills did allow some small business deductions for R&D (Research and Development), she rejected the "bonus depreciation" rules that help businesses buy new equipment.
It’s confusing. It’s frustrating. And for many, it feels unfair to be "double-taxed" on income the federal government has already labeled as exempt.
The 2026 Health Care Tax Credit Cliff
There’s another side to the Janet Mills federal taxes story that’s unfolding right now in early 2026. This one is about the Enhanced Premium Tax Credit (EPTC).
These are the federal credits that make health insurance affordable for about 60,000 Mainers on CoverME.gov. Governor Mills has been incredibly vocal about this—actually begging the federal government to extend them. She warned that if these federal credits expire, some families would see their health premiums jump by over 100%.
It’s a bit of a contradiction, isn't it? On one hand, she’s fighting for federal tax credits to stay in place to help with health care. On the other, she’s blocking federal tax relief from reaching Maine workers' state returns. It shows just how complicated the relationship between state and federal money really is.
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What You Should Do Right Now
If you're filing your taxes this season, don't just "guess" based on what you see on your W-2. The gap between federal and state law is the widest it has been in decades.
- Don't assume your software is right. Make sure your tax prep software (like TurboTax or H&R Block) has the latest Maine-specific updates for 2026. Because the state "decoupled" from the federal OBBBA, the software has to do two completely different sets of math.
- Watch the Legislature. There is still a chance—a slim one—that the Maine Legislature could pass "retroactive conformity" before the April 2026 deadline. If they do, you might need to file an amended return to get your money back.
- Check the Property Tax Fairness Credit. Since the state isn't giving you the federal-style breaks on tips or overtime, check if you qualify for Maine's own credits. Mills did expand the Property Tax Fairness Credit, which can give up to $1,000 (or $1,500 for seniors) back to low- and middle-income residents.
The bottom line? Your federal return is going to look a lot "friendlier" than your Maine return this year. That’s not a mistake on your part—it’s the direct result of a policy choice in Augusta.
Keep your records for tips and overtime separate and clear. If the political winds shift and the Legislature decides to match the federal rules later this year, you’ll want those numbers ready so you can claim every cent you're owed. For now, plan your budget around the higher state tax bill, even if your federal refund is bigger than usual.