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 the statute and IRS guidance. No-income-tax states like Texas and Florida maximise that benefit. High-tax states like California and New York add roughly 5–13% on top, and neither has a state deduction for overtime (Michigan, Arizona and Georgia do).
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 $50,400–$105,700 for single filers in 2026) or 24% (up to $201,775 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 a federal deduction (claimed on Schedule 1-A; it reduces taxable income, not AGI) of up to $12,500 per year for single filers ($25,000 MFJ) on FLSA-qualifying overtime premium. The deductible amount is the overtime premium — the extra 50% above the regular rate — not the full overtime pay. The deduction is reduced by $100 per $1,000 of modified AGI above $150,000 (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 — 9.3% on taxable income above $72,724 (2025 schedule) and reaching 13.3% at the top — and (2) California has not adopted 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, No State Deduction
New York starts from federal AGI, which the federal overtime deduction does not reduce (it is taken below AGI), and New York has no state overtime deduction — so New York workers get no state benefit from it. The state rate is 5.4% on taxable income from $13,900 to $80,650 and 5.9% up to $215,400 (2026 schedule), plus NYC's 3.078–3.876% surcharge for city residents, which 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 $7,770 after tax. An identical worker in California keeps closer to $6,840 — because California adds 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 $12,400
12%: $12,400–$50,400
22%: $50,400–$105,700
24%: $105,700–$201,775
32%: $201,775–$256,225
35%: $256,225–$640,600
37%: above $640,600
For married filing jointly, the 22% bracket runs approximately $100,800–$211,400.
The OBBBA Overtime Deduction: What the IRS Confirmed
The One Big Beautiful Bill Act, signed in 2025, creates a deduction (claimed on Schedule 1-A) for FLSA-qualifying overtime premium 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 with a $10 premium per overtime hour needs 1,250 overtime hours in a year to reach the $12,500 single cap ($12,500 ÷ $10); 200 overtime hours would give a $2,000 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.
Key deduction parameters confirmed by the IRS:
Cap: $12,500 (single/HOH) or $25,000 (MFJ); married taxpayers must file jointly to claim it
Phase-out: Reduced by $100 for each $1,000 of MAGI above $150,000 (single) / $300,000 (MFJ)
Expiry: Tax years 2025–2028 only (expires December 31, 2028)
Placement: Schedule 1-A, Form 1040 — reduces taxable income (not AGI); 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 taxable income up to $11,079 (2025 schedule, single)
2% to $26,264 and 4% to $41,452
6% at $41,452–$57,542
8% at $57,542–$72,724
9.3% at $72,724–$371,479 — the rate that applies to most higher overtime earners (exact brackets change each year; always verify current rates at ftb.ca.gov)
10.3% at $371,479–$445,771, then 11.3% and 12.3%
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, No State Deduction
New York starts from federal AGI as the starting point for its state income tax calculation. The OBBBA overtime deduction is claimed on Schedule 1-A below AGI, so it does not reduce New York taxable income, and New York has no overtime deduction of its own (the 2025 IT-201 instructions list none). New York workers get no state income tax benefit from the federal deduction — the same as California workers.
New York state income tax rates (2026 schedule, single filers):
3.9% on taxable income up to $8,500
4.4% to $11,700 and 5.15% to $13,900
5.4% at $13,900–$80,650
5.9% at $80,650–$215,400
6.85% at $215,400–$1,077,550, then 9.65%, 10.3% and 10.9% at higher incomes
New York City residents pay an additional 3.078%–3.876% NYC personal income tax on top of state rates. A NYC worker in the 5.4% state bracket faces a combined NYC + state rate of approximately 9.3% (about 9.8% in the 5.9% bracket).
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 computes its own gross income rather than starting from federal AGI, and this guide has not verified any New Jersey overtime deduction — check the NJ Division of Taxation.
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 starts from federal AGI for most purposes; because the federal overtime deduction is taken below AGI, it does not reduce Oregon taxable income unless Oregon has its own provision — workers should confirm current Oregon treatment at oregon.gov.
Minnesota: 9.85% Top Rate
Minnesota's top rate of 9.85% applies to single filers with taxable income above $203,150 (2026). For moderate overtime earners, the applicable rate is more commonly 6.8% or 7.85%. Whether the federal overtime deduction reduces Minnesota taxable income depends on Minnesota's own rules — check the Minnesota Department of Revenue.
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 has no state overtime deduction (the Illinois Department of Revenue's FY 2026-15 bulletin lists none), so the OBBBA deduction does not reduce Illinois taxable income. On $10,000 overtime, Illinois adds $495 in state tax.
Michigan: 4.25% Flat Tax, Own Overtime Deduction
Michigan levies a 4.25% flat income tax (confirmed by Michigan's Treasury for 2026). The federal deduction is taken below AGI, so Michigan enacted its own: 2025 PA 24 lets taxpayers deduct the qualified overtime compensation deducted on the federal return, for tax years 2026 through 2028 (not 2025). Michigan Treasury says the state deduction should generally mirror the federal one.
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 as the starting point for state tax. The OBBBA overtime deduction is claimed on Schedule 1-A below AGI, so it does not reduce AGI and does not carry over in these states — the state needs its own subtraction or deduction.
Federal taxable income: A state that starts from federal taxable income may pick up federal deductions taken below AGI automatically, unless it adds them back.
Most states with income taxes start from federal AGI or federal taxable income, so the treatment of the OBBBA deduction differs by state. Check your state revenue department rather than assuming it passes through.
States With Their Own Overtime Deduction
Because the federal deduction is taken below AGI, a state that starts from federal AGI benefits its workers only by enacting its own provision. Verified examples:
Michigan — 2025 PA 24 deduction for qualified overtime compensation, tax years 2026–2028
Arizona — HB 4168 subtraction mirroring the federal overtime deduction, for taxable years beginning from and after December 31, 2024
Georgia — HB 463 exclusion of up to $1,750 of qualified overtime compensation for full-time hourly employees, tax years 2026–2028
New York, Illinois, California, New Jersey, North Carolina and Hawaii (overtime) also have no overtime deduction, and Colorado requires an add-back of the federal overtime deduction from tax year 2026, according to their own official sources. For other states, including Minnesota and Oregon, confirm the current position with the state revenue department.
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 the 2026 standard deduction of $16,100 is $73,900, in the 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
Texas 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 (5.4%–5.9%, 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
New York state income tax (no state deduction; NY taxable income $82,000 after the $8,000 standard deduction, so the top $10,000 is taxed at 5.4% up to $80,650 and 5.9% above): $547
FICA on overtime: $10,000 × 7.65% = $765
Total tax on $10,000 overtime: ~$2,779 (before any NYC tax)
After-tax overtime take-home: ~$7,221
Illinois (4.95% Flat 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
Illinois state income tax (no state deduction): $10,000 × 4.95% = $495
FICA on overtime: $10,000 × 7.65% = $765
Total tax on $10,000 overtime: ~$2,727
After-tax overtime take-home: ~$7,273
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, no state deduction): ~$7,273
Michigan (4.25% flat, own deduction on the $3,333 premium: $283 state tax): ~$7,485
New York (5.4%–5.9%, no state deduction, no NYC tax): ~$7,221
California (9.3%, no state deduction): ~$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
Michigan's deduction covers tax years 2026 through 2028 and Georgia's exclusion is repealed after December 31, 2028, so both end with the federal deduction; Arizona's subtraction mirrors the federal amount. States without an overtime deduction, like California, 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-A.
Keep pay records that separate the overtime premium (the pay above the regular rate) from base-rate pay, since only the premium is deductible.
Monitor state conformity changes — states may enact or revoke conformity before 2028, changing the combined federal + state benefit.
CountryTaxCalc.com is reader-supported. When you use our partner links, we may earn a commission at no cost to you. This helps us provide free tax calculators and comparison tools. Learn more about our affiliate partnerships
Best for Most People
Wise
★ 4.3 Trustpilot · 287,413 reviews
Send money internationally at the real mid-market rate. Free to open. 14.8M customers worldwide. 4.3★ / 287,000+ Trustpilot reviews.
⚠ For currency exchange only — not a bank account replacement.
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 $50,400–$105,700 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?
No. New York starts its state income tax calculation from federal AGI, and the OBBBA overtime deduction is claimed on Schedule 1-A below AGI, so it does not reduce New York state taxable income; New York has no state overtime deduction of its own. New York workers therefore get no state-level benefit from the federal deduction — the same as California. New York state rates of 5.4%–5.9% for most earners (2026 schedule), plus NYC's up to 3.876% for city residents, apply to all 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.