Is Overtime Tax Free in Your State?
Overtime is only tax free at the federal level, and only partially. The federal deduction, up to $12,500 single or $25,000 joint for tax years 2025 through 2028, does not automatically change your state income tax. Most states start their calculation from federal AGI, and because the overtime deduction applies after AGI, it does not flow through: states like California, Ohio, Wisconsin, and Michigan still tax overtime pay in full. Workers in the nine states with no wage income tax, including Texas and Florida, pay no state tax on overtime anyway, so the federal deduction is the entire benefit. A few states have passed their own overtime exemptions, and Alabama's expired on June 30, 2025. Check the state table below, then use the calculator to estimate your combined federal and state savings on 2026 overtime.
Why a federal deduction stops at the state line
The mechanics come down to where the deduction sits on the Form 1040. Per the IRS's One Big Beautiful Bill Act overview, the overtime deduction is available to itemizers and non-itemizers alike, but it reduces taxable income after adjusted gross income has already been computed. Most taxing states copy your federal AGI as their starting number and never see anything that happens below that line. Tax Foundation's conformity research reaches the same conclusion: the new deduction flows through automatically only in the handful of states that begin from federal taxable income instead.
The seven states where it can flow through
Colorado, Idaho, Iowa, Montana, North Dakota, Oregon, and South Carolina start their income tax from federal taxable income. In those states the federal overtime deduction can carry into the state return, either automatically in rolling-conformity states such as Colorado and North Dakota, or once the legislature updates its conformity date in fixed-date states such as Idaho and South Carolina. Any of these states can also pass a law decoupling from the provision, so treat flow-through as likely rather than guaranteed and confirm with your state revenue department before counting the savings.
States writing their own overtime exemptions
Separate from federal conformity, a state can simply exempt overtime from its own income tax. Alabama did exactly that for 2024 and the first half of 2025, then let the exemption lapse on June 30, 2025 after it cost far more revenue than projected. Lawmakers in Kentucky, Nebraska, New York, North Carolina, and Virginia have introduced their own overtime or tips-and-overtime exemption bills, but as of this writing none has become law. If you work in one of those states, a search of your state revenue department's newsroom is worth five minutes before you file.
Overtime tax treatment by state, 2026
| State | Has wage income tax? | Taxes overtime in 2026? | Notes |
|---|---|---|---|
| Alabama | Yes | Yes | Its own overtime exemption expired June 30, 2025, so overtime is taxed again unless lawmakers renew it. Confirm with the Alabama DOR. |
| Alaska | No | No | No state income tax on wages. |
| Arizona | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Arkansas | Yes | Yes | Uses its own income definition; no federal flow-through. |
| California | Yes | Yes | Starts from federal AGI; daily overtime and double time pay are fully taxed. |
| Colorado | Yes | Partially | Starts from federal taxable income with rolling conformity; the federal deduction generally flows through. |
| Connecticut | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Delaware | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Florida | No | No | No state income tax on wages. |
| Georgia | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Hawaii | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Idaho | Yes | Partially | Starts from federal taxable income; flow-through depends on the annual conformity update. Confirm with your state DOR. |
| Illinois | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Indiana | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Iowa | Yes | Partially | Starts from federal taxable income; the federal deduction generally flows through. Confirm with your state DOR. |
| Kansas | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Kentucky | Yes | Yes | Overtime exemption bills have been proposed but not enacted. Confirm with your state DOR. |
| Louisiana | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Maine | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Maryland | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Massachusetts | Yes | Yes | Uses its own income definition; no federal flow-through. |
| Michigan | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Minnesota | Yes | Yes | Starts from federal AGI; exemption proposals have been discussed but not enacted. Confirm with your state DOR. |
| Mississippi | Yes | Yes | Uses its own income definition; no federal flow-through. |
| Missouri | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Montana | Yes | Partially | Starts from federal taxable income; the federal deduction generally flows through. Confirm with your state DOR. |
| Nebraska | Yes | Yes | An overtime exemption (LB 30) was proposed but not enacted. Confirm with your state DOR. |
| Nevada | No | No | No state income tax on wages. |
| New Hampshire | No | No | No tax on wages; the interest and dividends tax ended in 2025. |
| New Jersey | Yes | Yes | Gross income tax with its own rules; no federal flow-through. |
| New Mexico | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| New York | Yes | Yes | An overtime exemption (S 3914) was proposed but not enacted. Confirm with your state DOR. |
| North Carolina | Yes | Yes | An exemption for tips, overtime, and bonuses (HB 11) was proposed but not enacted. Confirm with your state DOR. |
| North Dakota | Yes | Partially | Starts from federal taxable income with rolling conformity; the federal deduction generally flows through. |
| Ohio | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Oklahoma | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Oregon | Yes | Partially | Ties to federal taxable income; generally flows through unless Oregon disconnects. Confirm with your state DOR. |
| Pennsylvania | Yes | Yes | Flat tax on its own wage definition; no federal flow-through. |
| Rhode Island | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| South Carolina | Yes | Partially | Starts from federal taxable income; flow-through depends on the annual conformity update. Confirm with your state DOR. |
| South Dakota | No | No | No state income tax on wages. |
| Tennessee | No | No | No state income tax on wages. |
| Texas | No | No | No state income tax on wages. |
| Utah | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Vermont | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Virginia | Yes | Yes | An exemption for tips and overtime (HB 1965) was proposed but not enacted. Confirm with your state DOR. |
| Washington | No | No | No wage income tax; the state capital gains tax does not touch wages. |
| West Virginia | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Wisconsin | Yes | Yes | Starts from federal AGI; the federal deduction does not flow through. |
| Wyoming | No | No | No state income tax on wages. |
"Partially" means the state begins from federal taxable income, so the federal deduction can reduce state tax on the overtime premium while the rest of the overtime wage stays taxable. State conformity decisions can change during a legislative session; where a row says to confirm, your state department of revenue's current-year guidance is the authority.
Worked example: same overtime, three states
A single warehouse lead earns a $6,000 qualified overtime premium in 2026 and sits in the 22% federal bracket. In Texas, she deducts $6,000 federally and saves about $1,320; there is no state layer at all. In Ohio, she saves the same $1,320 federally, but Ohio starts from federal AGI, so the full overtime remains in her state base and is taxed at Ohio's rates. In Colorado, the deduction flows into federal taxable income, Colorado's starting point, so she also avoids Colorado's 4.4% flat tax on the premium, roughly $264 more. Estimate your own federal side with the no tax on overtime calculator, then apply your state's rate to the premium if your state honors the deduction.
Frequently asked questions
My state starts from federal AGI. Is there anything I can do?
Not on the state return itself; the federal deduction simply never reaches it. You still get the full federal benefit, and the mechanics of claiming it are covered in why your overtime is still being taxed.
Did Alabama bring back its overtime exemption?
As of this writing the exemption remains expired, and renewal bills have circulated in Montgomery. Alabama workers should check the Alabama Department of Revenue's guidance for the current tax year before assuming either outcome.
Does the state question change what counts as qualified overtime?
No. The federal definition is fixed: the FLSA-required half-time premium for hours past 40 in a workweek, as explained in our guides for salaried employees and double time pay. States that honor the deduction inherit that same definition through the federal calculation.
Do Washington's or New Hampshire's special taxes hit overtime?
No. Washington taxes certain capital gains, not wages, and New Hampshire's tax on interest and dividends ended in 2025. Overtime wages face no state income tax in either place.
State tax law moves quickly and this table reflects the sources cited above as of mid-2026. It is general information, not tax advice; confirm your state's current treatment with its department of revenue or a qualified professional before you file.