Which states still tax overtime in 2026?
The 2025 One Big Beautiful Bill Act created a federal deduction for overtime pay — but it only cuts federal income tax. Whether your state also stops taxing overtime depends entirely on where you live. We computed the answer for every US jurisdiction for tax year 2026, from primary state sources. Here is where overtime is still taxed, where it is now effectively tax-free, and where it is still unsettled.
32
jurisdictions still tax overtime (states + DC)
8
states make the premium effectively tax-free
9
states with no wage income tax at all
2
partial or still-unclear for 2026
The short version: most states still tax overtime in 2026. The federal deduction is the headline, but state conformity is the deciding factor for your take-home pay — and the map is still moving. Indiana, Michigan — overtime newly tax-free for 2026; Colorado — overtime taxed again in 2026 (subject to change); Alabama, Georgia — only a partial state exclusion.
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State-by-state: overtime & tips conformity, tax year 2026
Tap a column header to sort. "Still taxed" means the state does not adopt the federal deduction, so the overtime premium remains taxable on your state return. Figures are for tax year 2026 and reflect the federal OBBBA premium deduction only.
| State | Overtime taxed? (2026) | Tips taxed? (2026) | Notes & source |
|---|---|---|---|
| Alabama | Partial changed from 2025 | Still taxed | Alabama does not conform to the full federal overtime deduction, but HB 527 (signed April 16, 2026) allows a smaller capped state deduction of up to $1,000 of qualified overtime compensation for tax years 2026–2028. Tips got no state relief — the federal tips deduction reduces your federal tax only. (Alabama's own earlier full overtime exemption ended June 30, 2025.) source |
| Alaska | No state wage tax | No state wage tax | Alaska has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| Arizona | Tax-free | Tax-free | Arizona adopted full OBBBA conformity in HB 4168, signed June 13, 2026 as part of the FY2026 budget deal. It creates a mandatory individual income-tax subtraction for qualified overtime and tips under A.R.S. §43-1022, retroactive to tax year 2025 and applying to 2026 and forward. (Earlier standalone conformity bills were vetoed in early 2026; the budget resolved it.) source |
| Arkansas | Still taxed | Still taxed | Arkansas has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| California | Still taxed | Still taxed | California has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Colorado | Still taxed changed from 2025 | Tax-free | Colorado allows the tips deduction both years. The overtime deduction flows through for 2025 but is added back from 2026 (HB25-1296), which is under a pending legal challenge. source |
| Connecticut | Still taxed | Still taxed | Connecticut has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Delaware | Still taxed | Still taxed | Delaware has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| District of Columbia | Still taxed | Still taxed | District of Columbia has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Florida | No state wage tax | No state wage tax | Florida has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| Georgia | Partial changed from 2025 | Partial | Georgia decouples from the full federal deductions. For tax years 2026 through 2028 it offers a smaller capped state exclusion instead (HB 463, signed May 11, 2026: up to $1,750 of qualified overtime and $1,750 of cash tips), not the full federal amount. source |
| Hawaii | Still taxed | Still taxed | Hawaii has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Idaho | Tax-free | Tax-free | Idaho starts from federal taxable income and conformed via HB559 (2026), retroactive to 2025 — the deductions flow through. source |
| Illinois | Still taxed | Still taxed | Illinois has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Indiana | Tax-free changed from 2025 | Tax-free | Indiana decouples for 2025. SEA 243 couples for 2026 ONLY and currently sunsets after 2026 — 2027–2028 are not yet conformed. source |
| Iowa | Tax-free | Tax-free | Iowa conforms (federal-taxable-income base); the deductions flow through to the state return. source |
| Kansas | Still taxed | Still taxed | Kansas has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Kentucky | Still taxed | Still taxed | Kentucky has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Louisiana | Still taxed | Still taxed | Louisiana has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Maine | Still taxed | Still taxed | Maine has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Maryland | Still taxed | Still taxed | Maryland has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Massachusetts | Still taxed | Still taxed | Massachusetts has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Michigan | Tax-free changed from 2025 | Tax-free | Michigan starts from federal AGI, so there is no automatic flow-through. A state subtraction applies for 2026–2028 but NOT for 2025. source |
| Minnesota | Still taxed | Still taxed | Minnesota has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Mississippi | Still taxed | Still taxed | Mississippi has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Missouri | Still taxed | Still taxed | Missouri has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Montana | Tax-free | Tax-free | Montana conforms; its 2025 forms allow the tips and overtime deductions. source |
| Nebraska | Still taxed | Still taxed | Nebraska has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Nevada | No state wage tax | No state wage tax | Nevada has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| New Hampshire | No state wage tax | No state wage tax | New Hampshire has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| New Jersey | Still taxed | Still taxed | New Jersey has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| New Mexico | Still taxed | Still taxed | New Mexico has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| New York | Still taxed | Tax-free | New York adopted its own 'no tax on tips' break in the FY2027 budget (signed May 28, 2026): up to $25,000 of tipped income is excluded from New York State income tax for tax years beginning in and after 2026, mirroring the federal rule. Overtime was NOT included — the federal overtime deduction reduces your federal tax only, and 2025 tips got no state relief. source |
| North Carolina | Still taxed | Still taxed | North Carolina has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| North Dakota | Tax-free | Tax-free | North Dakota is a rolling-conformity state that starts from federal taxable income, so it automatically incorporates the federal overtime and tips deductions for tax years 2025–2028. No decoupling legislation has been enacted. source |
| Ohio | Still taxed | Still taxed | Ohio has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Oklahoma | Still taxed | Still taxed | Oklahoma has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Oregon | Tax-free | Tax-free | Oregon conforms (rolling conformity); the deductions flow through to the state return. source |
| Pennsylvania | Still taxed | Still taxed | Pennsylvania has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Rhode Island | Still taxed | Still taxed | Rhode Island has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| South Carolina | Still taxed | Still taxed | South Carolina's IRC conformity date (December 31, 2024) pre-dates the federal OBBBA, and the 2026 conformity bill (H3368) was not enacted, so the tips (§224) and overtime (§225) deductions must be added back on the South Carolina return — they reduce your federal tax only. source |
| South Dakota | No state wage tax | No state wage tax | South Dakota has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| Tennessee | No state wage tax | No state wage tax | Tennessee has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| Texas | No state wage tax | No state wage tax | Texas has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| Utah | Still taxed | Still taxed | Utah does not allow these federal deductions to reduce your Utah state tax. source |
| Vermont | Still taxed | Still taxed | Vermont has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Virginia | Still taxed | Still taxed | Virginia has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Washington | No state wage tax | No state wage tax | Washington has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
| West Virginia | Still taxed | Still taxed | West Virginia has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Wisconsin | Still taxed | Still taxed | Wisconsin has not adopted the federal tips/overtime deductions for state income tax as of mid-2026, so they reduce your federal tax only. source |
| Wyoming | No state wage tax | No state wage tax | Wyoming has no state income tax on wages, so there is no state return to deduct on — your federal saving is the whole story. source |
Download the full dataset: CSV · JSON. Free to reuse with attribution to Tools Berry (CC BY 4.0).
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How we computed this
The federal deduction is fixed nationwide; the variation is entirely at the state level, driven by whether each state starts its income tax from federal adjusted gross income or taxable income, and whether it has passed legislation to adopt or decouple (keep the old rule instead of following the federal change) from the new federal deduction.
- Federal baseline (IRC §225)
- A deduction (claimed on Schedule 1-A after AGI, so it does not reduce your AGI) available whether or not you itemize, for the FLSA overtime premium only (the extra "half" of time-and-a-half), capped at $12,500 (single) or $25,000 (married filing jointly), for tax years 2025–2028, phasing out above $150,000 / $300,000 modified AGI (adjusted gross income with certain items added back). It reduces federal income tax only; FICA still applies.
- State conformity call (does the state follow the federal rule?)
- For each of the 50 states and DC we recorded whether, for tax year 2026, the state's tax base lets the federal overtime (and tips) deduction flow through ("still taxed" = no; "tax-free" = yes), plus partial or unclear cases where legislation is capped, pending, or administrative only.
- Sources
- Primary sources per state — the state Department of Revenue / Taxation guidance and the enacting bill text — supplemented by non-partisan trackers (Tax Foundation, Bloomberg Tax, Thomson Reuters). Each row links its source. Nine states have no wage income tax, so the question is moot there.
- Scope & limits
- This covers state income tax treatment of the federal deduction for 2026 only; several states' 2027–2028 treatment is unsettled and some 2026 rules face legal challenges (noted per state). This is computed general information, not tax advice.
Cite this data
Free to use and republish with attribution. Suggested citation:
Tools Berry, "Which States Still Tax Overtime in 2026?", tools-berry.com/data/overtime-tax-by-state/ (updated July 7, 2026).
Download: CSV · JSON · licensed CC BY 4.0. Journalists: happy to provide the underlying per-state sources or a custom cut — contact us.
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