By Mudassir Khan

No tax on overtime state conformity

The federal overtime deduction does not automatically cut your state tax. Here is which states let it flow through, which wrote their own version, and which still tax your overtime in full, with confirmed and uncertain positions clearly marked.

Positions as of August 2026 · Sources: state legislation, state revenue agency guidance, ITEP, Tax Foundation

Quick answer

Most states still tax your overtime in full because the §225 deduction sits below adjusted gross income, where most state returns never look. As of August 2026, five states let the federal deduction flow through, three adopted their own versions, and two more offer smaller state breaks. Nine states have no income tax at all. The rest tax overtime normally.

Important: State positions are moving targets. The table below reflects the best available information as of August 2026, and each entry is marked confirmed (enacted law or revenue agency guidance) or uncertain (pending, disputed, or no official action). Always verify with your state Department of Revenue before filing. Your federal deduction is unaffected by any of this.

Why most states do not follow it

The federal overtime deduction is claimed on Schedule 1-A, which is below the line: it reduces your federal taxable income but not your federal adjusted gross income (AGI). Most states build their return starting from federal AGI, so the deduction is simply invisible to them. Only two routes bring the deduction to a state return: the state starts from federal taxable income (a handful of states), or the state legislature passes its own version. For the full explanation, see does no tax on overtime apply to your state tax.

States where the federal deduction flows through (confirmed)

These five states start from federal taxable income, so the deduction carries into the state return automatically:

One caution with rolling conformity: these states follow the federal code as it exists for the tax year, so a legislature could still decouple before year end. Check your state tax agency for the latest.

States that adopted their own version (confirmed)

States with smaller state breaks (confirmed)

No state income tax (confirmed)

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax on wages, so there is no state layer to worry about and the federal deduction applies in full. (New Hampshire's Interest and Dividends Tax was repealed effective January 1, 2025.)

States that block or decouple

In these states the federal overtime deduction does not reduce state income tax, either by explicit decoupling or because the state starts from federal AGI, which the deduction never reaches. Your federal deduction is unaffected. Positions as of August 2026:

No official action yet (uncertain)

Arkansas, Kansas, Louisiana, and Mississippi have taken no legislative or administrative action as of August 2026. In practice, workers there are in the same position as in blocked states: standalone state codes or AGI start calculations mean the federal deduction cannot reach the state return without new state law. Treat these as uncertain and verify with the state revenue agency.

How to check your state

  1. Find your state's starting point. If your state return starts from federal taxable income, check whether the legislature decoupled. If it starts from federal AGI, the federal deduction almost certainly does not reach your state return.
  2. Search your state Department of Revenue site for "overtime deduction" or the state's 2026 conformity guidance. Revenue agency notices override any tracker.
  3. Watch the 2026 and 2027 sessions. Several bills are pending or revivable, notably in South Carolina, Nebraska, and Washington, D.C.

Sources

State positions on this page are drawn from enacted state legislation and state revenue agency guidance as compiled in an August 2026 fifty state conformity tracker (sources: ITEP, Tax Foundation, IRS FAQ, state tax agencies), with federal rules from IRS guidance on the Working Families Tax Cuts provisions. Positions are marked confirmed or uncertain above, and you should verify with your state Department of Revenue before filing.

Quick answers

Does the federal deduction lower my state tax?

Only if your state follows it. Most states do not. As of August 2026, five states let it flow through and three adopted their own versions.

Which states let the federal deduction flow through?

Idaho, Iowa, Montana, North Dakota, and Oregon, confirmed as of August 2026. They start from federal taxable income, so the below the line deduction reaches the state return.

Which states created their own overtime tax break?

Michigan (2026 to 2028), Indiana (2026 only), and Arizona (retroactive to 2025) adopted the federal deductions. Alabama and Georgia enacted smaller breaks, up to $1,000 and $1,750 respectively.

Why doesn't my state follow it if it conforms to federal law?

Because most states start from federal AGI, and the §225 deduction is claimed after AGI on Schedule 1-A. It never enters an AGI start calculation without separate state legislation.

I moved states during the year. Which rules apply?

Generally, each state taxes the income earned while you were a resident there under that state's rules. Part year and multi state returns are where professional help pays for itself.

Is this state list final?

No. Positions reflect August 2026 information, marked confirmed or uncertain, and legislatures are still acting. Verify with your state Department of Revenue before filing.

For the mechanism behind all of this, read does no tax on overtime apply to your state tax. To estimate your federal saving, use the deduction calculator.

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