STATE GUIDE · AS OF AUGUST 2026
No tax on overtime, state by state.
The federal deduction does not automatically flow to your state return. As of August 2026, only 6 states pass it through, 4 offer partial versions, and 31 income-tax states still tax your overtime premium in full. Here's every state, verified.
Why your state probably still taxes it.
The §225 deduction is below-the-line: it reduces federal taxable income, not AGI. Most state income taxes bolt onto federal AGI, so the deduction simply never enters their math. No add-back, no politics, just plumbing. Only the handful of states that start from federal taxable income (and keep current IRC conformity) inherit it automatically; everyone else needs to pass their own law, and a few have.
6
pass it through
4
partial versions
31
still tax it
9
no income tax
1
disputed (DC)
All 50 states + DC.
| State | State benefit? | Details |
|---|---|---|
| Alabama | Partial | Own $1,000 premium-only deduction for 2026-2028 (Act 2026-604); the broader state exemption expired June 30, 2025. |
| Alaska | No state income tax | No individual income tax, full federal benefit, nothing to conform. |
| Arizona | Yes, state benefit | HB 4168 (June 2026): conformity plus tips/overtime subtractions retroactive to 2025. |
| Arkansas | No, still taxed | Selective IRC conformity; §225 not adopted. |
| California | No, still taxed | Static conformity pre-dates OBBBA; overtime fully taxed by CA. Conformity bills pending only. |
| Colorado | No, still taxed | Taxable-income state that decoupled from the overtime deduction (HB25-1296 add-back). |
| Connecticut | No, still taxed | AGI starting point; no state equivalent enacted. |
| Delaware | No, still taxed | AGI starting point; OBBBA action limited to corporate items. |
| District of Columbia | Unclear | Decoupling vs. congressional disapproval dispute, treat overtime as taxable pending resolution. |
| Florida | No state income tax | No individual income tax. |
| Georgia | Partial | HB 463: exempts up to $1,750 of qualified overtime for 2026-2028; nothing for 2025. |
| Hawaii | No, still taxed | AGI starting point; state signaled non-conformity to OBBBA individual deductions. |
| Idaho | Yes, state benefit | HB 559 (Feb 2026): OBBBA conformity retroactive to 2025, deduction flows through. |
| Illinois | No, still taxed | AGI start plus an explicit statutory add-back for tips/overtime. |
| Indiana | Partial | State deduction equal to the federal one, but tax year 2026 forward only. |
| Iowa | Yes, state benefit | Starts from federal taxable income with rolling conformity, flows through 2025-2028. |
| Kansas | No, still taxed | AGI starting point; nothing enacted. |
| Kentucky | No, still taxed | AGI starting point with static conformity. |
| Louisiana | No, still taxed | AGI starting point; nothing enacted. |
| Maine | No, still taxed | AGI starting point with static conformity. |
| Maryland | No, still taxed | Considered 2026 legislation; none enacted, watch item. |
| Massachusetts | No, still taxed | Own deduction system from federal gross income; will not conform. |
| Michigan | Partial | First AGI state to opt in, own tips/OT deductions, but 2026-2028 only. |
| Minnesota | No, still taxed | AGI starting point (since 2019) with static conformity. |
| Mississippi | No, still taxed | Standalone state code; no automatic conformity. |
| Missouri | No, still taxed | 2025 relief targeted capital gains, not overtime. |
| Montana | Yes, state benefit | Taxable-income start with rolling conformity, flows through 2025-2028. |
| Nebraska | No, still taxed | AGI starting point; nothing enacted. |
| Nevada | No state income tax | No individual income tax. |
| New Hampshire | No state income tax | No wage tax (interest & dividends tax fully repealed in 2025). |
| New Jersey | No, still taxed | Own gross income tax with no IRC conformity; no overtime measure. |
| New Mexico | No, still taxed | AGI starting point; nothing enacted. |
| New York | No, still taxed | Enacted a tips-only state deduction instead; overtime bill stuck in committee. |
| North Carolina | No, still taxed | AGI start; tips/OT/bonus exemption bill in committee, watch item. |
| North Dakota | Yes, state benefit | Taxable-income start with rolling conformity, flows through 2025-2028. |
| Ohio | No, still taxed | AGI start; conformity updates don't reach below-the-line deductions. |
| Oklahoma | No, still taxed | AGI starting point; nothing enacted. |
| Oregon | Yes, state benefit | Taxable-income start with rolling conformity, flows through 2025-2028. |
| Pennsylvania | No, still taxed | Own flat-tax system with no federal deductions; overtime taxed at 3.07%. |
| Rhode Island | No, still taxed | AGI starting point; OBBBA action was corporate only. |
| South Carolina | No, still taxed | Taxable-income state, but static conformity pre-dates OBBBA and the conformity bill was defeated March 2026, could revisit. |
| South Dakota | No state income tax | No individual income tax. |
| Tennessee | No state income tax | No wage income tax. |
| Texas | No state income tax | No individual income tax, constitutionally prohibited. Full federal benefit. |
| Utah | No, still taxed | AGI-based flat tax; nothing enacted. |
| Vermont | No, still taxed | AGI starting point (since 2018); nothing enacted. |
| Virginia | No, still taxed | AGI start; routine conformity updates don't pick up §225. |
| Washington | No state income tax | No wage tax (capital-gains excise doesn't touch wages). |
| West Virginia | No, still taxed | AGI starting point; nothing enacted. |
| Wisconsin | No, still taxed | Legislature passed tips/OT bills April 2026; governor vetoed, watch item. |
| Wyoming | No state income tax | No individual income tax. |
Verified against Tax Foundation conformity research, state DOR guidance, and state legislative records, August 2026. Deep dives: California · Texas · New York · Alabama
Moving targets, what could change.
- →South Carolina defeated conformity in March 2026 but extended its filing deadline, a re-vote is possible.
- →Wisconsin passed tips/overtime bills that were vetoed, a rematch is likely.
- →North Carolina, Maryland, California, New York all have pending or recurring bills.
- →DC is in a genuine legal dispute between its decoupling act and a congressional disapproval resolution.
We track these on the updates page.
FAQ.
Why don't most states honor the federal overtime deduction?
Because of where it sits on the federal return. The deduction reduces federal taxable income, not AGI, and most state income taxes start their math from federal AGI. The deduction never enters their calculation, so no add-back is even needed. Only states starting from federal taxable income inherit it automatically.
Which states give the overtime deduction on 2025 state returns?
Six: Arizona (own retroactive subtraction), Idaho, Iowa, Montana, North Dakota, and Oregon. Alabama, Georgia, Indiana, and Michigan added partial or delayed versions starting with tax year 2026.
I live in a no-income-tax state. Do I get anything extra?
You already get the best case: the full federal deduction with zero state tax on your overtime in the first place. Nine states have no wage income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Your federal number is the big one anyway.
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