No Tax on Overtime Pennsylvania 2026: Federal Deduction + State Status

Pennsylvania Overtime Workers: What 'No Tax on Overtime' Really Means in 2026

If you work overtime in Pennsylvania, 2026 brings a federal tax break that is real — plus two competing state bills that are not. At the federal level, the One Big Beautiful Bill Act (OBBBA) created a deduction of up to $12,500 ($25,000 for married filing jointly) on FLSA-qualifying overtime pay, effective for tax years 2025 through 2028. At the state level, Pennsylvania has not enacted any equivalent tax break. Two different bills — House Bill 1610 (a broader tax reform package) and House Bill 1586 (a standalone overtime tax credit) — have each been proposed, and both remain stalled in committee as of August 2026, according to the Pennsylvania General Assembly's own bill-tracking records.

This guide walks through exactly what the federal OBBBA overtime deduction does for Pennsylvania workers, confirms the current (non-enacted) status of both pending state bills, and explains what Pennsylvania's flat 3.07% income tax means for overtime pay today. Two worked examples — for an hourly manufacturing-style worker and a higher-earning overtime scenario — show the real combined federal-and-state tax bill, plus what would change under each pending bill if it were ever signed into law.

Where Pennsylvania's Own Overtime Tax Break Actually Stands

Pennsylvania overtime workers actually have two separate, competing bills aimed at their paychecks — and understanding the difference matters because they use entirely different mechanisms.

House Bill 1610: A Deduction Bundled With Corporate Tax Reform

HB 1610, sponsored by House Democrats, would amend the Tax Reform Code of 1971 to exclude overtime pay (and, per contemporaneous reporting on the bill, tip income) from Pennsylvania personal income tax. It also bundles in a cut to the Corporate Net Income Tax from 7.99% to 4.99% by 2031 and a combined-reporting mandate for multi-state corporations. The bill passed the Pennsylvania House on June 25, 2025 by a 104-99 vote, largely along party lines, and was referred the same day to the Senate Finance Committee, where it has remained without a hearing or vote for over a year as of August 2026.

House Bill 1586: A Standalone, Refundable Overtime Credit

HB 1586 takes a different approach. Sponsored by Republican Rep. Ryan Warner with 13 co-sponsors, it proposes a fully refundable Pennsylvania tax credit for state income tax paid on overtime compensation — meaning workers would first pay Pennsylvania tax on their overtime as normal, then claim a credit equal to that tax back on their PA-40 return, using documentation from their employer. Unlike HB 1610, HB 1586 does not touch tips or corporate tax at all — it is overtime-only. It was referred to the House Finance Committee on June 10, 2025 and has recorded no committee votes since.

Why Neither Bill Has Passed

Pennsylvania's legislature is divided — Democrats control the House, Republicans control the Senate. HB 1610's corporate tax and combined-reporting provisions have drawn Republican opposition even though the overtime/tips exclusion itself has bipartisan appeal (one Republican House Freedom Caucus leader publicly said a standalone tips-and-overtime bill would likely pass unanimously). HB 1586, despite being narrower, has simply not been scheduled for a committee vote. Neither bill's provisions have taken effect for any Pennsylvania overtime worker as of August 2026.

Bottom Line

Pennsylvania has zero enacted state-level tax break for overtime pay. Every dollar of FLSA overtime a Pennsylvania worker earns remains fully subject to the state's 3.07% flat income tax, exactly as it was before the federal OBBBA deduction existed.

The Federal OBBBA Overtime Deduction: What Actually Applies Right Now

While Pennsylvania's own bills sit in committee, the federal OBBBA overtime deduction is enacted law and applies to Pennsylvania workers exactly as it does nationwide.

• Amount: Up to $12,500 of FLSA-qualifying overtime pay deductible from federal AGI for single filers; up to $25,000 for married filing jointly.
• Mechanism: An above-the-line deduction claimed on Schedule 1 of Form 1040 — available whether or not you itemize.
• FICA is unaffected: Social Security (6.2%) and Medicare (1.45%) — 7.65% combined — still apply to every dollar of overtime pay. The deduction only touches federal income tax.
• Who qualifies: Only FLSA-qualifying overtime — time-and-a-half pay for hours over 40 per week earned by non-exempt employees. Exempt salaried employees and 1099 independent contractors do not qualify.
• Phase-out: Reduces dollar-for-dollar above $150,000 AGI (single) / $300,000 AGI (MFJ).
• Sunset: Expires December 31, 2028 unless Congress extends it.

Because Pennsylvania has not conformed to this federal provision, the deduction only reduces your federal taxable income. Your Pennsylvania PA-40 return is calculated independently — absent HB 1610 or HB 1586 becoming law, the full amount of your overtime pay remains part of your Pennsylvania taxable compensation.

Pennsylvania's Flat 3.07% Tax and Overtime Pay

Pennsylvania's flat 3.07% personal income tax applies to overtime pay exactly as it applies to regular wages — there is no separate category, no higher rate, and, absent a conforming law, no exemption. Because Pennsylvania has no state standard deduction or personal exemption, the first dollar of overtime pay is taxed at 3.07% just like the last dollar.

This actually makes Pennsylvania's overtime tax math simpler than the federal system's: multiply your total overtime pay for the year by 3.07% to estimate what you owe the state, with no bracket calculations needed. A worker earning $12,000 in overtime pay owes Pennsylvania $368.40 in state income tax on that overtime alone (3.07% × $12,000) — regardless of how much of that same overtime is shielded from federal tax under the OBBBA deduction.

Local Earned Income Tax (EIT), levied by most Pennsylvania municipalities and school districts, applies on top of the state rate and is also unaffected by either pending state bill. Rates typically run 1%–2% outside Philadelphia, where the combined city wage tax reaches roughly 3.75% for residents. This guide's worked examples use the 3.07% state rate only; check your specific municipality for the applicable local EIT rate.

Worked Example 1: Pennsylvania Hourly Worker, 10 Hours/Week Overtime

Scenario: single filer, Pennsylvania resident, $24/hour base rate, works 50 hours per week for 40 weeks of the year.

If HB 1586 were enacted as a refundable state credit on overtime taxes paid, this worker would receive an estimated $442 credit back (3.07% × $14,400 overtime pay), lowering the effective Pennsylvania tax in this scenario to roughly $1,179. That credit does not currently exist. Figures are estimates; consult a tax professional.

Worked Example 2: $85,000 Total Wages, $20,000 in Overtime

Scenario: single filer, Pennsylvania resident, $65,000 in regular wages + $20,000 in FLSA-qualifying overtime pay = $85,000 total wages.

Under a hypothetical enacted HB 1586, this worker's refundable state credit would be about $614 (3.07% × $20,000 overtime), bringing effective Pennsylvania tax down to roughly $1,996. This is illustrative of pending legislation only. Always verify your own figures with a tax professional or the Pennsylvania Department of Revenue.

Tracking HB 1610 and HB 1586: What to Watch For

Pennsylvania overtime workers hoping for a state-level tax break should watch specific procedural signals rather than political rhetoric.

• Senate Finance Committee action on HB 1610: Stalled since June 25, 2025 with no hearing scheduled as of August 2026.
• House Finance Committee action on HB 1586: Referred June 10, 2025, no votes recorded since. As the narrower, single-purpose bill, it faces fewer political obstacles than HB 1610 but has still not been scheduled for a vote.
• A standalone compromise bill: Because HB 1610's overtime/tips provisions are broadly popular but its corporate tax provisions are not, a narrower standalone bill has the best chance of passage — this would most likely emerge from negotiations rather than either existing bill passing as written.
• State budget cycle: The Working Pennsylvanians Tax Credit was resolved through the FY2025-26 budget process (signed November 2025). The FY2026-27 budget cycle is a plausible venue for a tips/overtime deal, though not guaranteed.
• Effective date, if passed: Neither bill as currently drafted would be retroactive; overtime already earned before enactment would not qualify.

This guide will be reviewed again by November 2026. Until then, Pennsylvania overtime workers should plan around the current, confirmed reality: the federal OBBBA deduction is available, and Pennsylvania's 3.07% tax on overtime pay remains in effect with no exemption or credit.