Do States Tax Overtime? State-by-State Overview (2026)
The OBBBA overtime deduction is federal. Most states still tax overtime as normal wages.
Estimate your federal overtime deduction
What the phase-out actually does
A single filer claiming the full $12,500 of qualified FLSA overtime premium. Every row is produced by the same calculation the estimator above uses, at a 22% marginal rate.
| Modified AGI | Qualified premium | Before phase-out | Phase-out | Deduction | Tax saved |
|---|---|---|---|---|---|
| $149,999$1 below the phase-out start — still the full amount | $12,500 | $12,500 | — | $12,500 | $2,750 |
| $150,000Exactly at the phase-out start — still the full amount | $12,500 | $12,500 | — | $12,500 | $2,750 |
| $181,250Inside the phase-out range | $12,500 | $12,500 | − $3,100 | $9,400 | $2,068 |
| $212,500Inside the phase-out range | $12,500 | $12,500 | − $6,200 | $6,300 | $1,386 |
| $243,750Inside the phase-out range | $12,500 | $12,500 | − $9,300 | $3,200 | $704 |
| $274,999$1 before the deduction reaches zero | $12,500 | $12,500 | − $12,400 | $100 | $22 |
| $275,000The first modified AGI at which nothing is left | $12,500 | $12,500 | − $12,500 | $0 | — |
| $275,001$1 past it — there is nothing further to lose | $12,500 | $12,500 | − $12,500 | $0 | — |
The two shaded rows at the top are the ones worth noticing: the deduction is still whole at the threshold, so reaching it costs nothing. The rows at the bottom show where it finally runs out.
The No Tax on Overtime deduction only affects your FEDERAL income tax. Most states tax overtime pay exactly like regular wages and do not automatically follow the federal deduction, so your state tax on overtime usually doesn't change. A handful of states have considered or enacted their own overtime tax breaks — check your state, because rules are shifting.
The federal deduction reduces the income subject to federal income tax. It does not automatically reduce your state income tax. States decide their own rules, and most simply tax overtime like any other wages.
There are two easy cases: states with no income tax (like Texas and Florida) never tax overtime, and states that tax wages generally tax overtime the same way. A few states have debated separate overtime exemptions, so verify your state's current law.
How states generally treat overtime
| State type | Overtime taxed? | Notes |
|---|---|---|
| No income tax (TX, FL, NV, WA, etc.) | No state tax | No state income tax on any wages |
| Most income-tax states | Yes, as normal wages | Do not follow the federal deduction automatically |
| States conforming to federal AGI | Varies | May pick up the deduction if they start from federal AGI |
| States with a special OT rule | Check your state | A few have debated separate exemptions |
Why the federal deduction still helps
Even if your state taxes overtime normally, the federal deduction is often the larger benefit — federal rates are higher than most state rates. Use the calculator above to estimate the federal deduction on your overtime premium, then check your state's rules separately.
Because state conformity to federal changes varies and can update each legislative session, always confirm with your state's department of revenue before assuming a state break.
Frequently asked questions
Is overtime taxed by my state?
In most states, yes — overtime is taxed like regular wages, and states don't automatically follow the federal no-tax-on-overtime deduction. States with no income tax don't tax overtime at all.
Does the federal overtime deduction lower my state tax?
Usually not directly. It reduces federal taxable income. Whether your state picks it up depends on how your state conforms to federal law — many don't, so verify with your state.
Which states don't tax overtime?
States with no personal income tax — such as Texas, Florida, Nevada, and Washington — don't tax overtime because they don't tax wage income at all.
Could my state add an overtime tax break?
Possibly. A few states have discussed their own overtime exemptions. Rules change by legislative session, so check your state department of revenue for the current year.
IRS sources & verification
Last reviewed August 8, 2026.