The federal deduction does not automatically follow you onto your state return. Why states differ, which ones pass it through, which ones do not — and how to check yours before you file.
The §225 deduction reduces your federal taxable income. It does not, by itself, change any state return. Whether your state also lets you deduct the overtime premium depends entirely on that state's own tax law — specifically, on two questions: what does the state use as the starting point for its tax, and has the state chosen to follow the federal change?
That is why two workers with identical federal deductions can owe very different state tax. The federal return is the same; the state returns are governed by different statutes, different conformity dates, and different legislative choices.
Most states start their income tax from a federal figure, but they do not all start from the same one — and that single difference decides most cases.
The pattern to remember: a state that starts from federal taxable income and has not decoupled probably passes it through; a state that starts from AGI, has an old conformity date, or has affirmatively rejected it probably does not. Everything else requires checking that state's current law.
Nine states levy no personal income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For workers there, the conformity question does not arise — there is no state wage tax for the deduction to affect. That is the only group where the answer is unconditionally simple.
Take a worker with a $6,500 federal deduction at a 22% federal bracket: $1,430 saved federally. In a pass-through state, the same $6,500 may also reduce state taxable income — at a hypothetical 5% state rate, that is another $325. In a non-conforming state, the state saving is zero, and the full overtime premium is taxed by the state as ordinary wages. The federal benefit is real either way; the state benefit depends entirely on where you file.
Withholding follows the same split. Your employer withholds state tax on all overtime wages as usual, because the federal deduction is not a withholding exemption. A state that conforms may still require you to wait until filing to see the benefit, just like the federal return.
Only if your state follows it. Most states do not follow it automatically. Whether yours does depends on its starting point, its conformity date, and any legislation it has passed.
Because "conformity" has two common meanings. A state starting from federal AGI conforms to the AGI figure — but the §225 deduction comes after AGI, so it never enters the state's calculation. A state with a pre-2025 conformity date conforms to an older version of federal law that lacks the deduction entirely.
Generally, each state taxes the income earned while you were a resident there (or sourced there), under that state's rules. Part-year and multi-state returns are exactly the cases where professional help pays for itself.
No. State withholding applies to all overtime wages as usual. Any state benefit arrives at filing, not in your paycheck.
No, anywhere. FICA taxes apply to all overtime pay in full, in every state — the deduction is federal income tax only.
Estimate the federal side with the deduction calculator — then check your state revenue department for the state side before you file.