Does your state tax overtime in 2025

By Mike

Whether your state taxes your overtime comes down to two questions. Does your state tax wage income at all, and does it follow the new federal overtime deduction or ignore it. Nine states take no broad income tax on wages, so the state does not tax overtime there at all. Most other states do not pass the new federal break through on their own, and the reason is a quiet mechanic the federal-only pages skip.

The mechanic that decides it

The federal qualified overtime deduction is claimed on a new form, Schedule 1-A, and it sits below the line. It does not reduce your federal adjusted gross income. So a state that starts its own income tax math from your federal AGI never sees the deduction, and it does not carry through by default. Only states that begin from federal taxable income rather than AGI fold the exemption in automatically. That single design choice is why two workers earning the same overtime can owe very different state tax.

Federal rule, in plain words

Only the premium part of overtime is deductible, the extra pay above your regular rate. That is the half of time and a half, not the whole overtime check. The deduction has a cap per return, with a higher cap for joint filers, and it shrinks as income rises once modified adjusted gross income passes a threshold. You can claim it whether you itemize or take the standard deduction. It runs for tax years 2025 through 2028 and then ends unless the law changes. The IRS built Schedule 1-A to calculate and claim it, and Part III of the instructions is the part covering overtime. The same schedule also handles tips, car loan interest, and the enhanced deduction for seniors.

Your state, grouped four ways

Find your state below. If it is not named, read the not yet confirmed group and the default rule, because that is where most unnamed states land for now.

No state income tax

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not levy a broad individual income tax on wages, so the state does not tax your overtime regardless of the federal change. The Tax Foundation counts eight states, including New Hampshire after it repealed its interest and dividends tax in 2025, that levy no individual income tax at all, and that group includes Florida and Texas.

State conforms or honors the deduction

Some rolling-conformity states automatically conform to federal taxable income, so they will not tax tips and overtime unless they pass a law to decouple. Iowa, Montana, North Dakota, and Oregon sit in that group. Absent any state action, the federal tips and overtime break would have carried over by default to seven states, Colorado, Idaho, Iowa, Montana, North Dakota, Oregon, and South Carolina. Read that as the default starting point, not a settled promise, because a state can still pass a law to add the income back.

State does not honor it

North Carolina does not allow the overtime deduction, because the new deductions are taken after AGI and do not affect North Carolina taxable income. New York does not honor the federal tip or overtime deduction, so New York workers still pay state tax on that income. California signaled no intention to adopt the deductions. Alabama ran its own state exemption for overtime wages, but that ended on June 30, 2025, after which overtime is again subject to Alabama income tax. Colorado is a moving case. It requires no add-back for 2025, but for tax years beginning on or after January 1, 2026 Colorado taxpayers must add back overtime they deducted federally.

Not yet confirmed

If your state has issued no specific guidance, treat it as not yet confirmed, which means unknown, not no. The default still leans one way though. Because the deduction sits below federal AGI, a state that starts from federal AGI or uses a static pre-2025 conformity date does not pass it through on its own, so overtime generally stays taxable there until the state acts. The stakes are real for state budgets. If every state linked to the federal tips and overtime provisions, states would lose an estimated $8.6 billion of revenue in 2026, which is why many will decide deliberately rather than by accident.

How we know, and what we left out

I built this calculator and checked its output by hand against the IRS rule, and the hand math matched the code to the cent. The cap, the phase out, and the 2025 through 2028 window are recomputed in code from IRS guidance and Schedule 1-A, never hand typed into the copy. For the state overlay I read each status from that state's own Department of Revenue or its legislation, plus the IRS guidance, and where a state has published nothing or its sources conflict I mark it not yet confirmed rather than guess. State positions keep shifting through the 2026 sessions, so this page is dated and re-checked.

Questions workers actually ask

Is my whole overtime check tax free now

No. Only the premium part is deductible federally, the half of time and a half above your regular rate, not the full overtime amount.

Does the deduction lower my AGI

No. It is claimed on Schedule 1-A below the line and does not reduce federal adjusted gross income, which is exactly why many states do not pass it through.

I live in Texas, do I get state relief

Texas levies no broad individual income tax, so there is no state tax on your overtime to relieve in the first place.

How long does the federal break last

It applies for the 2025 through 2028 tax years and may change if Congress, the IRS, or a state amends the rules.