Overtime is taxed as ordinary income at your federal marginal rate plus your state income tax rate. In 2026, the OBBBA deduction lets FLSA-eligible W-2 workers deduct up to $12,500 (single) or $25,000 (MFJ) of qualifying overtime pay from federal taxable income — but only the overtime premium (the extra 50%) counts toward that cap per IRS guidance. No-income-tax states like Texas and Florida maximise that benefit. High-tax states like California and New York add 6–13% on top, and California does not conform to the federal deduction.
At a glance
Key Facts
Federal Overtime Tax Rate
Overtime is taxed at your ordinary federal income tax rate — the same marginal rate as your regular wages. There is no separate or preferential federal rate for overtime pay. For most moderate overtime earners, the marginal rate is 22% (taxable income roughly $47,150–$100,525 for single filers in 2026) or 24% (up to $191,950 single). The OBBBA deduction reduces federal taxable income by up to $12,500 single / $25,000 MFJ on the overtime premium portion.
The OBBBA Overtime Deduction (2025–2028)
The One Big Beautiful Bill Act (OBBBA) creates an above-the-line federal deduction of up to $12,500 per year for single filers ($25,000 MFJ) on FLSA-qualifying overtime pay. Per IRS guidance, the deductible amount is the overtime premium — the extra 50% above the regular rate — not the full overtime pay. The deduction phases out above $150,000 AGI (single) / $300,000 (MFJ) and expires December 31, 2028.
No-Income-Tax States: Maximum OBBBA Benefit
Alaska, Florida, Nevada, New Hampshire (wages), South Dakota, Tennessee (wages), Texas, Washington, and Wyoming have no state income tax on wages. Workers here benefit from the full federal OBBBA deduction with no state tax layered on top. At the 22% federal bracket: $12,500 deduction saves $2,750 in federal income tax, with zero additional state income tax on the same overtime.
California: Worst State for Overtime Tax
California is the most costly state for overtime workers because (1) it has high marginal income tax rates starting at 9.3% above $66,295 and reaching 13.3% at the top, and (2) California has formally decoupled from the federal OBBBA deduction — California workers get no state deduction on overtime pay. The combined federal + California state rate on overtime for a worker in the 22% federal and 9.3% CA bracket is approximately 31.3% before FICA.
New York: High State Rate, But OBBBA Passes Through
New York conforms to federal AGI as its starting point for state taxable income. This means the OBBBA overtime deduction reduces New York AGI automatically — New York workers get a state tax benefit from the federal deduction. However, the state rate of 6.85% (up to $215,400 single) plus NYC's 3.078–3.876% surcharge still makes New York significantly more expensive for overtime than no-tax states.
FICA Still Applies Everywhere
Social Security (6.2%) and Medicare (1.45%) — combined 7.65% FICA — apply to all overtime pay in all 50 states. No state can exempt overtime from federal FICA. The OBBBA deduction does not reduce FICA. On $10,000 overtime, every worker in every state owes $765 in FICA regardless of state income tax law.
Introduction
Your State Makes a Huge Difference to What Overtime Actually Costs You
Two workers can earn the exact same overtime pay and face very different after-tax results depending solely on their state of residence. A construction worker in Texas earning $10,000 in overtime at the 22% federal bracket keeps roughly $7,800 after tax. An identical worker in California keeps closer to $6,300 — because California adds up to 9.3% state income tax on top of federal, and California does not adopt the federal OBBBA overtime deduction. Understanding how federal and state tax layers stack — and how the new OBBBA deduction interacts with each — is the key to knowing your real overtime take-home. This guide maps the tax burden state by state, explains the OBBBA deduction mechanics, and gives you a direct worked comparison for the most common states.
Section 01
How Federal Overtime Tax Works in 2026
Understanding the federal baseline is the essential first step — state taxes are layered on top of it.
Overtime Is Ordinary Income at Your Marginal Rate
The IRS does not apply a special rate to overtime pay. Every dollar of overtime you earn is added to your total wages for the year and taxed at your marginal federal income tax rate — the same rate as your last dollar of regular wages. If your regular income already puts you in the 22% bracket, your overtime is also taxed at 22%. If overtime pushes you into the next bracket, the portion in the higher bracket is taxed at that higher rate.
2026 federal income tax brackets for single filers (approximate):
10%: taxable income up to $11,925
12%: $11,925–$48,475
22%: $48,475–$103,350
24%: $103,350–$197,300
32%: $197,300–$250,525
35%: $250,525–$626,350
37%: above $626,350
For married filing jointly, the 22% bracket runs approximately $96,950–$206,700.
The OBBBA Overtime Deduction: What the IRS Confirmed
The One Big Beautiful Bill Act, signed in 2025, creates an above-the-line deduction for FLSA-qualifying overtime pay. The IRS confirmed in its official newsroom guidance that the deductible amount is the overtime premium — the extra 50% above the regular rate. This is an important distinction:
If your regular rate is $20/hour and you earn $30/hour for overtime, only the $10 premium per overtime hour counts toward the $12,500 cap.
A worker who earns 200 overtime hours at a $10 premium reaches the $12,500 single cap exactly (200 × $10 = $2,000 per pay period × ... wait — 200 × $10 = $2,000 total? No: 200 overtime hours × $10 premium = $2,000. At that pace, the worker would need to reach $12,500 in total premium to max out the deduction).
A worker at $15/hour regular rate ($22.50 overtime) earning the premium of $7.50/hour needs approximately 1,667 overtime hours to reach the $12,500 cap — well above what most workers clock in a year. Most hourly workers will deduct their full premium amount.
Expiry: Tax years 2025–2028 only (expires December 31, 2028)
Placement: Above-the-line (Schedule 1, Form 1040) — no need to itemise
FICA Is Separate and Unaffected
Social Security (6.2%) and Medicare (1.45%) apply to all overtime pay. The OBBBA deduction is an income tax provision only — it does not reduce FICA. On $10,000 of overtime, every worker owes $765 in FICA regardless of state, regardless of the OBBBA deduction. This is the most important caveat to the 'no tax on overtime' framing.
How the Deduction Interacts With Your Paycheck
Most employers will not automatically reduce federal income tax withholding to account for the OBBBA deduction. Withholding is set by your W-4. Workers expecting a significant overtime deduction benefit should consider adjusting their W-4 to avoid overwithholding — or accept that the benefit arrives as a refund when filing. Consult your payroll department or a tax professional before adjusting withholding.
Section 02
No-Income-Tax States: Best for Overtime Workers
Nine states impose no state income tax on wages, meaning overtime workers there face only federal income tax and FICA — no state layer at all. These workers extract the maximum value from the OBBBA deduction.
The Nine No-Tax States
Texas — no state income tax. The second-largest state by workforce, with large concentrations of overtime-heavy industries: oil and gas, construction, trucking, healthcare.
Florida — no state income tax. Major overtime sectors: hospitality, healthcare, logistics.
Nevada — no state income tax. Gaming, hospitality, and construction workers benefit.
Washington — no state income tax on wages (though a capital gains tax applies to investment income above thresholds). Tech, healthcare, and maritime workers.
Wyoming — no state income tax. Energy sector workers.
South Dakota — no state income tax. Agriculture, healthcare, trucking.
Alaska — no state income tax and no state sales tax. Oil and gas, fishing.
Tennessee — no state income tax on wages (Tennessee eliminated its Hall Tax on investment income in 2021; wages were never taxed). Manufacturing, healthcare, logistics.
New Hampshire — no state income tax on wages (investment income has historically been taxed but wage income is exempt). The Granite State's wage workers pay only federal on overtime.
What 'No State Tax' Means for Overtime
For a single worker in the 22% federal bracket earning $10,000 of overtime in Texas:
Federal income tax on overtime (before OBBBA): $10,000 × 22% = $2,200
OBBBA overtime premium deduction: reduces federal taxable income (premium portion only — see mechanics above)
State income tax: $0
FICA: $10,000 × 7.65% = $765
Approximate all-in tax on overtime: $765 FICA + reduced federal income tax (depending on premium amount)
The OBBBA benefit is fully preserved — no state income tax erodes it, and no state decoupling applies. Use the No Tax on Overtime Calculator to enter your actual wages, overtime hours, and state for a precise figure.
OBBBA Conformity Is Not Relevant for These States
State conformity to the OBBBA overtime deduction is a question only relevant for states with income taxes. No-income-tax states have nothing to conform — their workers simply face zero state income tax on all income including overtime. The entire state conformity debate does not apply here.
Section 03
High-Tax States and How They Treat Overtime
Workers in high-income-tax states face a second layer of taxation on overtime — and the critical question is whether their state conforms to the federal OBBBA deduction or calculates state tax independently.
California: Decoupled, Highest Burden
California is the most expensive state for overtime workers for two compounding reasons:
1. High marginal rates:
1% on income up to $10,756
2% to 4% through $67,458
6% at $67,458–$83,780
8% at $83,780–$113,469
9.3% at $113,469–$599,012 — the rate that applies to most overtime earners in the $66k–$338k range cited by the California FTB (exact brackets vary by year; always verify current rates at ftb.ca.gov)
10.3% above $338,639
13.3% at the very top (above $1M for single filers)
2. California decoupled from the OBBBA: California does not automatically conform to federal tax law changes unless the state legislature separately enacts conformity. As of 2026, California has not enacted the OBBBA overtime deduction for California income tax purposes. California overtime workers get no state deduction — their state-taxable income includes the full overtime pay at their California marginal rate.
Combined burden for a single worker in the 22% federal bracket and 9.3% California bracket:
Federal income tax on overtime (after OBBBA premium deduction): ~22% on amounts above the deductible premium
California state income tax: 9.3% (on full overtime, no deduction)
FICA: 7.65%
Combined marginal rate on non-deductible overtime: approximately 39%
New York: High Rates, But OBBBA Passes Through
New York conforms to federal AGI as the starting point for its state income tax calculation. Because the OBBBA overtime deduction reduces federal AGI, it automatically reduces New York state taxable income as well. New York workers get a state income tax benefit from the federal deduction — unlike California workers.
New York state income tax rates (2026 approximate, single filers):
4% on income up to $8,500
4.5%–5.25% up to $23,600
5.85% at $23,600–$107,650
6.25% at $107,650–$269,300
6.85% at $269,300–$1,077,550 — the rate for most higher overtime earners
New York City residents pay an additional 3.078%–3.876% NYC personal income tax surcharge on top of state rates. A NYC worker in the 6.85% state bracket faces a combined NYC + state rate of approximately 10.7%.
New Jersey: 6.37% on Significant Overtime
New Jersey's income tax rate of 6.37% applies to income above $75,000. Workers earning significant overtime on top of a base salary above $75,000 see this rate applied to their overtime. New Jersey generally conforms to federal AGI, so the OBBBA deduction passes through and reduces NJ taxable income.
Oregon: 9.9% Top Rate
Oregon's top marginal rate of 9.9% applies at higher income levels, with a standard rate of 8.75% for most middle-income earners. Oregon conforms to federal AGI for most purposes, which means the OBBBA deduction generally reduces Oregon taxable income. However, Oregon has historically enacted selective decoupling from specific federal provisions — workers should confirm current Oregon conformity status at oregon.gov.
Minnesota: 9.85% Top Rate
Minnesota's top rate of 9.85% applies to single filers above approximately $183,340 (2026 — verify at revenue.state.mn.us). For moderate overtime earners, the applicable rate is more commonly 6.8% or 7.85%. Minnesota conforms to federal AGI as the starting point, so the OBBBA deduction generally passes through.
Illinois: 4.95% Flat Tax
Illinois levies a 4.95% flat income tax on all individual income regardless of amount. This simplicity means every dollar of overtime — including amounts covered by the federal OBBBA deduction — is taxed at 4.95% by Illinois. Illinois conforms to federal AGI, so the OBBBA deduction reduces Illinois taxable income proportionally. On $10,000 overtime, Illinois adds $495 in state tax (less for the deductible premium portion).
Michigan: 4.05% Flat Tax, Federal AGI Conformity
Michigan levies a 4.05% flat income tax (adjusted in recent years; verify current rate at michigan.gov/taxes). Michigan uses federal AGI as its starting point, meaning the OBBBA overtime deduction automatically reduces Michigan taxable income. Michigan is one of the more straightforward conforming states for the OBBBA calculation.
Section 04
State Conformity to the OBBBA: The Key Dividing Line
The most consequential question for overtime workers in income-tax states is whether their state automatically picks up the federal OBBBA overtime deduction or calculates state income tax independently.
How State Conformity Works
Most states calculate their income tax starting from one of two reference points:
Federal AGI (Adjusted Gross Income): The state uses the federal AGI line (after all federal above-the-line deductions, including the OBBBA overtime deduction) as the starting point for state tax. Above-the-line federal deductions like the OBBBA automatically reduce state taxable income in these states.
Federal gross wages (W-2 Box 1): The state ignores federal deductions and starts from raw wages. A state using W-2 wages as its starting point would not automatically pass through the OBBBA above-the-line deduction — workers would need the state to separately enact equivalent conforming legislation.
The large majority of states with income taxes use federal AGI or a close variant as their starting point. This means the OBBBA deduction generally passes through automatically for workers in those states.
States That DO Conform (OBBBA Benefit Passes Through)
States that begin their income tax calculation from federal AGI generally pass through the OBBBA overtime premium deduction automatically. This includes:
New York — federal AGI starting point → OBBBA passes through
New Jersey — federal AGI starting point → OBBBA passes through
Illinois — federal AGI starting point → OBBBA passes through
Michigan — federal AGI starting point → OBBBA passes through
Minnesota — generally conforms to federal AGI → OBBBA likely passes through
Oregon — generally conforms to federal AGI, but selective decoupling possible → confirm at oregon.gov
California: The Major Exception
California is the most prominent — and most impactful — state that does NOT conform to the OBBBA. California uses a selective conformity system: it conforms to the federal Internal Revenue Code as of a specific date (a 'static' conformity date), and does not automatically adopt subsequent federal changes. Each new federal tax provision requires California to separately enact conforming legislation. As of June 2026, California has not enacted the OBBBA overtime deduction. California overtime workers are taxed by California on their full overtime pay with no deduction.
Why This Matters in Dollar Terms
For a single worker at 9.3% California state rate earning $12,500 in qualifying overtime premium:
Federal OBBBA deduction saves: $12,500 × 22% = $2,750
California state tax on that same overtime: $12,500 × 9.3% = $1,163 still owed to California
Net benefit compared to a Texas worker: the Texas worker keeps the full $2,750 federal saving; the California worker keeps $2,750 federally but pays back $1,163 to California — net benefit only $1,587.
This gap widens further for workers in higher California brackets (10.3% or 13.3%).
How to Check Your State's Current Conformity Status
State tax conformity can change each legislative session. The authoritative source is always your state revenue department's website. Look for 'federal conformity' or 'federal tax changes' pages. For California: ftb.ca.gov. For New York: tax.ny.gov. For a full 50-state overview of states that have enacted their own OBBBA overtime conformity, see the companion guide: OBBBA Overtime Deduction Explainer 2026.
Section 05
Worked Comparison: $10,000 Overtime at $80,000 Income Across Four States
To make the state-by-state difference concrete, here is a worked example using a single filer with $80,000 base salary earning $10,000 in overtime for a total of $90,000 in wages.
Assumptions
Filing status: single
Base salary: $80,000
Overtime earnings: $10,000 (this is the full overtime pay including premium)
OBBBA deductible premium: approximately $3,333 (assumes regular rate = base rate, 1.5x overtime, so premium = 1/3 of total overtime pay — e.g., $20 regular / $30 overtime = $10 premium per hour; 333.3 hours × $10 = $3,333)
Federal bracket: 22% (taxable income after standard deduction of $15,000 falls in 22% range)
Standard deduction taken (not itemising)
No phase-out (well below $150,000 threshold)
Texas (No State Tax)
Gross overtime: $10,000
Federal OBBBA deduction on premium: ~$3,333
Federal income tax on overtime: ($10,000 − $3,333) × 22% = $6,667 × 22% = $1,467
California state income tax: $0
FICA on overtime: $10,000 × 7.65% = $765
Total tax on $10,000 overtime: ~$2,232
After-tax overtime take-home: ~$7,768
California (9.3% State Rate, No State Deduction)
Gross overtime: $10,000
Federal OBBBA deduction on premium: ~$3,333
Federal income tax on overtime: ($10,000 − $3,333) × 22% = $1,467
California state income tax (no deduction): $10,000 × 9.3% = $930
FICA on overtime: $10,000 × 7.65% = $765
Total tax on $10,000 overtime: ~$3,162
After-tax overtime take-home: ~$6,838
New York (6.85% State Rate, OBBBA Passes Through)
Gross overtime: $10,000
Federal OBBBA deduction on premium: ~$3,333
Federal income tax on overtime: ($10,000 − $3,333) × 22% = $1,467
New York state income tax (OBBBA passes through): ($10,000 − $3,333) × 6.85% = $6,667 × 6.85% = $457
FICA on overtime: $10,000 × 7.65% = $765
Total tax on $10,000 overtime: ~$2,689
After-tax overtime take-home: ~$7,311
Illinois (4.95% Flat Rate, OBBBA Passes Through)
Gross overtime: $10,000
Federal OBBBA deduction on premium: ~$3,333
Federal income tax on overtime: ($10,000 − $3,333) × 22% = $1,467
Illinois state income tax (OBBBA passes through): ($10,000 − $3,333) × 4.95% = $6,667 × 4.95% = $330
FICA on overtime: $10,000 × 7.65% = $765
Total tax on $10,000 overtime: ~$2,562
After-tax overtime take-home: ~$7,438
Summary Table
Approximate after-tax overtime take-home per $10,000 earned, single filer at $80k base (22% federal bracket):
Texas / Florida / Nevada / WA / WY / SD / AK / TN / NH: ~$7,768 (no state tax)
Illinois (4.95% flat, conforming): ~$7,438
Michigan (4.05% flat, conforming): ~$7,559
New York (6.85% standard, conforming): ~$7,311
New Jersey (6.37% at $75k+, conforming): ~$7,369
California (9.3%, non-conforming): ~$6,838
These are illustrative estimates. Actual results vary by exact income, bracket, filing status, local taxes (e.g., NYC surcharge), and the precise premium calculation. Use the No Tax on Overtime Calculator for your personalised figures.
Section 06
The 2028 Sunset and What Happens Next
The OBBBA overtime deduction is temporary legislation with a built-in expiry date of December 31, 2028. Planning around this sunset is important for both workers and employers.
The Four-Year Window
The deduction is available for tax years 2025 through 2028 only:
2025 tax year (filed spring 2026): Deduction available
2026 tax year (filed spring 2027): Deduction available
2027 tax year (filed spring 2028): Deduction available
2028 tax year (filed spring 2029): Deduction available — final year
2029 tax year and beyond: Deduction expires unless Congress acts
What Happens at Sunset
If Congress does not extend or make the provision permanent, overtime pay reverts to being fully taxable at ordinary income tax rates — the same treatment as any other wages. There is no automatic extension or phase-down; it is a hard cliff on December 31, 2028. Workers who have adjusted their financial planning, W-4 elections, or overtime strategies around the deduction should maintain awareness of the sunset and any congressional action.
How States Will React at Sunset
States that currently conform to federal AGI (and thus pass through the OBBBA deduction automatically) will also automatically lose that benefit when the federal deduction expires — no state action needed. States that have proactively enacted their own standalone overtime deductions (if any do so before 2028) would need to separately repeal those provisions. California, having never conformed, would see no change at the federal sunset.
Planning Implications
Workers currently benefiting from the OBBBA deduction should:
Not structure long-term financial commitments (mortgages, debt payments) around the deduction continuing past 2028.
Maximise the benefit in the four available years by tracking overtime premium earnings carefully and claiming the deduction accurately on Schedule 1.
Watch for IRS guidance on overtime premium calculation methodology — the interpretation of 'premium only vs. full overtime pay' is not fully settled and could change the deduction value.
Monitor state conformity changes — states may enact or revoke conformity before 2028, changing the combined federal + state benefit.
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In Texas there is no state income tax, so overtime is only subject to federal income tax and FICA. The federal rate depends on your marginal bracket — typically 22% for workers earning $48,475–$103,350 in taxable income (single filer). The OBBBA deduction reduces federal income tax on the overtime premium (the extra 50% portion). FICA of 7.65% applies to all overtime regardless. For a 22%-bracket worker, the effective all-in rate on overtime in Texas is roughly 22–30% before the OBBBA deduction, or lower after it.
Q
Does California conform to the OBBBA overtime deduction?
No. As of 2026, California has not enacted the OBBBA overtime deduction for state income tax purposes. California uses a static conformity date and does not automatically adopt federal tax law changes. California workers pay state income tax on their full overtime earnings at California's marginal rate — 9.3% for most moderate earners, up to 13.3% at the top — with no state deduction equivalent to the OBBBA.
Q
Does New York conform to the OBBBA overtime deduction?
Yes. New York starts its state income tax calculation from federal AGI. Because the OBBBA overtime deduction is an above-the-line federal deduction that reduces federal AGI, it automatically reduces New York state taxable income as well. New York workers get the benefit of the federal deduction at the state level — unlike California. New York state rates of up to 6.85% (plus NYC surcharge of up to 3.876% for city residents) still apply to non-deductible overtime.
Q
Is the overtime deduction for the full overtime pay or just the premium?
The IRS confirmed in its official OBBBA guidance that the deductible amount is the overtime premium — the extra 50% above the regular rate — not the full overtime pay. If your regular rate is $20/hour and your overtime rate is $30/hour, only the $10 premium per overtime hour counts toward the $12,500 single cap. This distinction matters most for high hourly earners working large amounts of overtime.
Q
How much is overtime taxed in California vs Texas in 2026?
Significant difference. On $10,000 of overtime for a single worker at $80k base income (22% federal bracket): Texas worker takes home approximately $7,768 after FICA and federal income tax (with OBBBA). California worker takes home approximately $6,838 after FICA, federal income tax, and 9.3% California state tax — with no California OBBBA deduction. The gap is approximately $930 per $10,000 of overtime, and widens further for workers in higher California brackets.
Q
When does the overtime tax deduction expire?
The OBBBA overtime deduction expires after December 31, 2028. It applies to tax years 2025, 2026, 2027, and 2028. Unless Congress passes legislation to extend or make it permanent, overtime pay will be fully taxable at ordinary income tax rates starting with the 2029 tax year. There is no automatic extension in the current law.
Q
Do I pay FICA (Social Security and Medicare) on overtime in every state?
Yes. FICA — Social Security at 6.2% and Medicare at 1.45%, combined 7.65% — applies to all overtime pay in all 50 states. FICA is a federal payroll tax and no state can exempt its residents from it. The OBBBA deduction does not affect FICA. On every $1,000 of overtime you earn, $76.50 goes to FICA regardless of your state or the income tax deduction.
Disclaimer:This guide is for informational purposes only and does not constitute tax, legal, or financial advice. State income tax rates and conformity to federal OBBBA provisions are subject to change each legislative session. California conformity status is based on information available as of June 2026 — always verify current state conformity at your state's revenue department website. The OBBBA overtime deduction expires December 31, 2028 unless extended by Congress. Consult a qualified tax professional for advice specific to your situation.