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No Tax on Overtime: Illinois 2026 — Federal Deduction + 4.95% State Rate

Daniel · CountryTaxCalc Updated June 2026
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At a glance

Key Facts

Federal OT deduction (OBBBA)
Up to $12,500 single / $25,000 MFJ
Illinois income tax rate
4.95% flat on all income
Illinois personal exemption
$2,925 per taxpayer (2026)
Illinois conformity to OBBBA
None — overtime fully taxable at state level
FICA on overtime
7.65% — unchanged
Introduction
Illinois imposes a flat 4.95% income tax on all income — including overtime pay. While the federal OBBBA overtime deduction can reduce your federal income tax on up to $12,500 (single) of qualifying overtime premium, Illinois has no state deduction for it and taxes your overtime in full. This guide explains exactly what Illinois workers keep after both federal and state taxes on overtime earnings in 2026.
Section 01

Illinois Tax on Overtime: What You Owe

Illinois has a constitutionally mandated flat income tax — Article IX, Section 3 of the Illinois Constitution requires a non-graduated rate on income. That prevents a lower rate for overtime income, although the legislature can still create subtractions by ordinary law (Illinois already subtracts Social Security and qualified retirement income). As of 2026, Illinois taxes overtime at the same 4.95% rate as all other income. On $10,000 in overtime pay, Illinois income tax is $495. Illinois has not passed any conforming legislation for the OBBBA overtime deduction.
Section 02

The Federal Deduction Still Applies

Even though Illinois does not conform, you still benefit from the federal OBBBA deduction. For a single Illinois worker with $12,500 of qualifying overtime premium (the pay above the regular rate — $37,500 of overtime pay at time-and-a-half) within a total MAGI below $150,000, the full $12,500 is deductible from federal taxable income. At a 22% federal marginal rate, that saves $2,750 in federal income tax. You still pay Illinois 4.95% on the same $12,500 ($618.75) and FICA 7.65% ($956.25). Net saving from OBBBA on this amount: $2,750 federal saved minus $0 state savings = $2,750 in total tax reduction compared to pre-OBBBA law.
Section 03

Chicago and Other Illinois Cities

Illinois does not have a local income tax in the traditional sense — Chicago and other Illinois cities do not impose a separate wage income tax. Chicago's higher cost of living means workers often earn higher OT wages than the state average, increasing both the overtime amount and the benefit of the federal deduction. Illinois workers in Cook County (Chicago area) may also face higher property taxes and sales taxes that affect total household tax burden.
Section 04

Worked Example: Illinois Nurse on OT

An Illinois nurse earning $40/hour works 50 hours per week for 26 weeks during a staffing shortage. Regular pay: $40 × 40 × 26 = $41,600. Overtime pay: $60 × 10 × 26 = $15,600. Total wages: $57,200. Only the overtime premium — the extra 0.5× portion of the rate, $20/hour × 10 × 26 = $5,200 — qualifies for the OBBBA deduction, not the full time-and-a-half overtime pay. OBBBA OT deduction: $5,200 (well under the $12,500 cap). Federal taxable income: $57,200 − $16,100 standard − $5,200 = $35,900. Federal income tax: ~$4,060. Illinois taxable income: $57,200 − $2,925 exemption = $54,275. Illinois income tax: ~$2,687. FICA: $4,376. Total tax: ~$11,122. Without OBBBA: federal taxable income $41,100 and federal income tax ~$4,684. OBBBA saves $624 for this worker ($5,200 × 12%).
Section 05

Illinois Overtime Law vs FLSA

Illinois overtime law generally mirrors the FLSA — time-and-a-half for hours over 40 per week. Illinois also has the One Day Rest in Seven Act requiring employees to have at least 24 hours of rest per week. Unlike California, Illinois does not have daily overtime (1.5× after 8 hours per day). Only the weekly 40-hour threshold applies. Qualifying Illinois overtime for the OBBBA deduction means FLSA overtime — hours above 40 per workweek for non-exempt employees, paid at 1.5× the regular rate.
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FAQ

Frequently Asked Questions

Can Illinois pass a state-level No Tax on Overtime law?

Illinois faces a constitutional constraint — the flat tax requirement in Article IX means it cannot tax one category of income at a lower rate than another without a constitutional amendment. It can, however, create a subtraction by ordinary legislation (as it has for Social Security and qualified retirement income). The Illinois Department of Revenue's FY 2026-15 'What's New' bulletin lists no overtime subtraction, so as of that bulletin Illinois taxes overtime in full.

Do Illinois public employees (state workers, teachers) get the OBBBA deduction?

The OBBBA overtime deduction applies to FLSA-covered overtime. Many state and local government employees ARE covered by the FLSA, so if they earn overtime at 1.5×, it qualifies. However, teachers classified as exempt under the FLSA "learned professional" exemption would not have qualifying overtime. Check your employment classification.

Does the OBBBA deduction affect Illinois estimated tax payments?

The federal OBBBA deduction reduces federal estimated tax liability. You should reduce your federal quarterly payments to reflect the expected deduction. Your Illinois estimated tax payments remain based on the full overtime income — the deduction does not reduce Illinois liability.

What is the Illinois exemption amount for 2026?

The Illinois personal exemption is $2,925 per taxpayer for 2026 ($2,850 for 2025), according to the Illinois Department of Revenue. This is the only deduction available for most Illinois workers; Illinois does not allow the standard federal deduction or most federal itemized deductions.
Disclaimer:This guide is for educational purposes only and does not constitute tax, legal, or financial advice. Illinois tax law and OBBBA regulations are subject to change. Consult a licensed CPA or tax professional for advice specific to your situation.
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