As of May 2026, only seven states automatically pass the federal OBBBA overtime deduction through to state income tax: Idaho, Iowa, Michigan, Montana, North Dakota, Oregon, and South Carolina. In all other income-taxing states, you still owe full state income tax on overtime — even though your federal liability is reduced. Workers in nine states with no income tax pay no state tax on overtime in any case.
If you've heard "no tax on overtime" and assumed every dollar of overtime pay is now tax-free, the reality is more complicated. The OBBBA created a federal income tax deduction (capped at $12,500 single / $25,000 joint) for the FLSA premium portion of overtime — but states control their own income tax rules independently. Whether the federal deduction reduces your state tax bill depends entirely on how your state's tax code is written.
This guide answers the question for all 50 states. We use the latest research from the Tax Foundation and ITEP on state conformity, plus current state revenue department status as of May 2026. Status can change as state legislatures act — always verify with your state revenue department before filing.
Does Any State Conform to the OBBBA Overtime Deduction?
As of May 2026, no state has enacted legislation specifically conforming to the federal OBBBA overtime deduction. Seven states automatically inherit it through their Federal Taxable Income starting point (Idaho, Iowa, Michigan, Montana, North Dakota, Oregon, and South Carolina), but most states still tax overtime earnings in full. Workers in states with no income tax (Texas, Florida, Nevada, Washington, Wyoming, South Dakota, Alaska) are unaffected since there was never state tax on wages to begin with.
Why the Federal Deduction Doesn't Always Affect State Taxes
States choose their own starting point for calculating taxable income. The two main approaches:
- Federal Taxable Income (FTI) start. States that begin from the federal taxable income figure on Form 1040 automatically inherit federal "below-the-line" deductions like the OBBBA overtime provision — because those deductions have already been subtracted from federal taxable income. Seven states use this approach for the overtime deduction: Idaho, Iowa, Michigan, Montana, North Dakota, Oregon, and South Carolina.
- Federal Adjusted Gross Income (AGI) start. States that begin from federal AGI miss federal below-the-line deductions like OBBBA overtime, because AGI sits above the deduction on the federal return. Most state income taxes use this approach. To pass the deduction through, these states must enact specific legislation.
On top of that, states can actively decouple from a federal provision they would otherwise inherit. Colorado did exactly this — was on track to automatically conform, then passed legislation specifically excluding the OBBBA overtime provision from state taxable income to preserve roughly $119 million in 2026 state revenue. Maine and the District of Columbia also rejected conformity outright.
States With No Income Tax — Does the Deduction Help You?
Nine states impose no income tax on wages, so workers in these states get the full federal deduction with no state offset — they were never paying state income tax on overtime anyway:
- Alaska — no state income tax
- Florida — no state income tax
- Nevada — no state income tax
- New Hampshire — no tax on wages (taxes interest/dividends only, being phased out)
- South Dakota — no state income tax
- Tennessee — no state income tax (the former Hall Tax on investment income was repealed in 2021)
- Texas — no state income tax
- Washington — no broad-based state income tax (capital gains tax exists for high earners, doesn't affect wages)
- Wyoming — no state income tax
If you live in one of these nine states and qualify for the OBBBA deduction, the math is simple: your overtime premium reduces your federal tax bill, and there's no state income tax to worry about. FICA (Social Security 6.2% + Medicare 1.45%) still applies to all overtime pay, in every state.
Complete State Conformity Table
Status of all 50 states plus DC. Conform means the federal OBBBA overtime deduction automatically reduces your state taxable income. No conformity means it does not — you still owe full state income tax on overtime.
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| State | Income Tax? | Conforms to OBBBA OT? | Top Rate | Notes |
|---|---|---|---|---|
| Alabama | Yes | No | 5.0% | Federal AGI start |
| Alaska | No | N/A | — | No state income tax |
| Arizona | Yes (flat) | No | 2.5% | Federal AGI start |
| Arkansas | Yes | No | 3.9% | Federal AGI start |
| California | Yes | No | 13.3% | 2015 conformity date; AGI start |
| Colorado | Yes (flat) | Decoupled | 4.4% | Actively rejected via legislation |
| Connecticut | Yes | No | 6.99% | AGI start |
| Delaware | Yes | No | 6.6% | AGI start |
| D.C. | Yes | Decoupled | 10.75% | Council passed decoupling legislation |
| Florida | No | N/A | — | No state income tax |
| Georgia | Yes (flat) | No | 5.39% | AGI start |
| Hawaii | Yes | No | 11.0% | AGI start |
| Idaho | Yes (flat) | Pending* | 5.3% | Will conform on next IRC update |
| Illinois | Yes (flat) | No | 4.95% | AGI start |
| Indiana | Yes (flat) | No | 3.0% | AGI start |
| Iowa | Yes (flat) | Yes | 3.8% | FTI start; auto-conforms |
| Kansas | Yes | No | 5.7% | AGI start |
| Kentucky | Yes (flat) | No | 4.0% | AGI start |
| Louisiana | Yes (flat) | No | 3.0% | AGI start |
| Maine | Yes | Decoupled | 7.15% | Governor instructed non-conformity |
| Maryland | Yes | No | 5.75% | AGI start; +local tax |
| Massachusetts | Yes | No | 9.0% | AGI start; surtax over $1M |
| Michigan | Yes (flat) | Yes | 4.25% | FTI start; auto-conforms |
| Minnesota | Yes | No | 9.85% | AGI start |
| Mississippi | Yes (flat) | No | 4.4% | AGI start |
| Missouri | Yes | No | 4.7% | AGI start |
| Montana | Yes | Yes | 5.9% | FTI start; auto-conforms |
| Nebraska | Yes | No | 5.2% | AGI start |
| Nevada | No | N/A | — | No state income tax |
| New Hampshire | No (wages) | N/A | — | No tax on wages |
| New Jersey | Yes | No | 10.75% | AGI start |
| New Mexico | Yes | No | 5.9% | AGI start |
| New York | Yes | No | 10.9% | AGI start; +NYC local tax |
| North Carolina | Yes (flat) | No | 4.25% | AGI start |
| North Dakota | Yes | Yes | 2.5% | FTI start; auto-conforms |
| Ohio | Yes | No | 3.5% | AGI start |
| Oklahoma | Yes | No | 4.75% | AGI start |
| Oregon | Yes | Yes | 9.9% | FTI start; auto-conforms |
| Pennsylvania | Yes (flat) | No | 3.07% | State has its own definition of income |
| Rhode Island | Yes | No | 5.99% | AGI start |
| South Carolina | Yes | Pending* | 6.2% | Will conform on next IRC update |
| South Dakota | No | N/A | — | No state income tax |
| Tennessee | No | N/A | — | No state income tax |
| Texas | No | N/A | — | No state income tax |
| Utah | Yes (flat) | No | 4.55% | AGI start |
| Vermont | Yes | No | 8.75% | AGI start |
| Virginia | Yes | No | 5.75% | AGI start |
| Washington | No (wages) | N/A | — | Capital gains tax only |
| West Virginia | Yes | No | 5.12% | AGI start |
| Wisconsin | Yes | No | 7.65% | AGI start |
| Wyoming | No | N/A | — | No state income tax |
* Idaho and South Carolina use static IRC conformity dates. They will pick up the OBBBA overtime deduction once they update their conformity statutes — most likely during their 2026 legislative sessions. Until then, status is technically "non-conforming." Top rates shown are top marginal individual income tax rates for 2026; actual tax depends on your bracket. Sources: Tax Foundation 2026 State Income Tax Rates; ITEP analysis of OBBBA conformity.
Deep Dive: 10 States With the Most Overtime Workers
California Top rate 13.3%
California's tax code uses a 2015 IRC conformity date — the most outdated in the country — and starts from federal AGI. Both factors mean the OBBBA overtime deduction does not flow through to California state tax. With a top marginal rate of 13.3% (the highest in the U.S.), California overtime workers face the largest gap between federal savings and state liability of any state. A nurse earning $90,000 with $5,000 in overtime premium saves on federal tax but still pays roughly $465 in California income tax on that overtime at the 9.3% bracket. No conformity legislation has passed as of May 2026.
Texas No income tax
Texas has no state income tax, so Texas workers benefit fully from the federal OBBBA deduction with no state-level offset. There is no state-level paperwork or calculation to worry about — your federal tax savings are your total tax savings on overtime, minus FICA which still applies in every state. Texas is one of the most favorable states for OBBBA overtime workers because of this combination.
New York Top rate 10.9%
New York starts from federal AGI and has not enacted conformity legislation. New York City workers pay city income tax on top of state tax, with combined top marginal rates approaching 14.78%. As of May 2026, no New York conformity legislation has been enacted. Workers in New York continue to owe full state and (where applicable) city income tax on overtime pay.
Florida No income tax
Florida workers face no state income tax on any wages, including overtime. The OBBBA federal deduction reduces federal tax with no state offset to consider. Florida's combination of large hourly workforce (hospitality, healthcare, retail) and zero state income tax makes the OBBBA deduction unusually impactful for Florida workers.
Ohio Top rate 3.5%
Ohio uses federal AGI as its starting point and has not conformed to the OBBBA overtime deduction. Many Ohio cities also impose a local income tax averaging around 1.49% — these local taxes apply to wages including overtime regardless of federal treatment. Ohio's relatively low state rate (3.5% top marginal) means the gap between federal savings and state liability is smaller than in high-tax states, but still real.
Pennsylvania Flat 3.07%
Pennsylvania uses its own independent definition of taxable wages rather than starting from federal taxable income or AGI. Because of this structure, federal deductions like the OBBBA overtime provision do not flow through to Pennsylvania state tax under any interpretation. Pennsylvania has not enacted specific conforming legislation. Pennsylvania's flat 3.07% rate plus local taxes (Philadelphia, Pittsburgh, etc.) still apply to all overtime pay.
Michigan Flat 4.25%
Michigan is one of seven states where the federal OBBBA deduction does automatically reduce state tax. Michigan starts its state tax calculation from federal taxable income, so when the OBBBA overtime deduction reduces your federal taxable income, it reduces your Michigan taxable income at the same time. At Michigan's 4.25% flat rate, a $5,000 overtime premium deduction translates to roughly $213 in additional state tax savings on top of the federal reduction.
Illinois Flat 4.95%
Illinois uses federal AGI as its tax base and has not enacted OBBBA conformity. Illinois workers continue to owe the full 4.95% state income tax on all overtime pay. With one of the largest hourly workforces in the Midwest (manufacturing, healthcare, logistics), Illinois has been a watchpoint for potential state-level legislation, but no conforming bill has passed as of May 2026.
Georgia Flat 5.39%
Georgia uses federal AGI and has not conformed. Georgia's flat tax structure makes the math straightforward: every dollar of overtime is taxed at 5.39% regardless of federal treatment. Several Southeastern states including Georgia have been discussed as potential conformity candidates given lower projected revenue impact than larger states, but no bill has been enacted.
North Carolina Flat 4.25%
North Carolina uses federal AGI as its starting point and has not enacted conforming legislation. The state's flat 4.25% rate applies to all overtime pay. North Carolina's ongoing rate reductions (set to drop to 3.99% in coming years under existing law) mean the gap between federal savings and state liability will narrow over time, but does not eliminate the state tax owed on overtime.
What Could Change — State Legislation to Watch
According to industry tracking, more than 20 states introduced legislation during 2025 to either conform to or decouple from the OBBBA tip and overtime provisions. Most of these bills are still pending, expired without action, or were re-introduced for 2026 sessions. The dominant reason states have moved slowly is fiscal: the Tax Foundation estimates that nationwide state-level conformity to the overtime deduction would cost states more than $11 billion annually if every state adopted it.
Where to check your state's current status
- Your state's Department of Revenue or Department of Taxation website — search for "OBBBA," "overtime deduction," or "federal conformity"
- Your state's legislature website — search bill databases for "qualified overtime" or "Section 225 conformity"
- National sources tracking conformity in real time: Tax Foundation, ITEP, and Bloomberg Tax
- A local CPA or enrolled agent — best option for filing-season decisions
If your state passes conforming legislation during 2026, the rule may apply retroactively to tax year 2025 (most state OBBBA conformity bills propose retroactive application). That means even if your state is non-conforming when you read this, the situation could change before you file.
How to Calculate Your Total Tax Savings by State
Your total savings on an overtime premium is your federal savings (per our overtime calculator) minus any state income tax you still owe on that same amount. Here are two worked examples that illustrate the gap between the best and worst states.
Single filer, $90,000 base wages, $5,000 in qualified overtime premium for 2025. Federal marginal rate: 22%. California marginal rate: 9.3%.
Single filer, $65,000 base wages, $5,000 in qualified overtime premium for 2025. Federal marginal rate: 22%. Texas: no state income tax.
Single filer, $48,000 base wages, $3,000 in qualified overtime premium for 2025. Federal marginal rate: 12%. Michigan flat rate: 4.25%.
Calculate your federal overtime savings now →
Run your numbers through the calculator. State savings on top depend on your state's conformity status.
Open the CalculatorFrequently Asked Questions
Does my state offer a no-tax-on-overtime deduction?
It depends on your state. As of May 2026, seven states (Idaho, Iowa, Michigan, Montana, North Dakota, Oregon, and South Carolina) automatically conform to the federal OBBBA overtime deduction because they start state income tax calculations from federal taxable income. Most other states with income taxes do not — workers in those states still owe full state income tax on overtime. Nine states have no income tax at all, so the question is moot.
Why doesn't the federal deduction automatically reduce my state taxes?
Each state controls its own income tax rules. Some states use federal taxable income as their starting point and pick up federal deductions automatically; others use federal adjusted gross income (AGI) as their starting point, which sits above the OBBBA deduction on Form 1040 and so doesn't pick it up.
States that don't conform can also pass their own legislation to either adopt or reject specific federal provisions.
Did California pass a no-tax-on-overtime law?
No. California has not enacted conforming legislation. California uses a 2015 conformity date and starts from federal AGI, so the OBBBA overtime deduction does not flow through. California workers still owe full state income tax on overtime pay at rates up to 13.3%.
What about Texas, Florida, or other no-income-tax states?
Texas, Florida, Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming have no state income tax on wages. There was never any state income tax on overtime to begin with, so workers in these states get the full federal OBBBA benefit with no state-level offset.
Will more states adopt the federal deduction?
Possibly. Over 20 states introduced legislation in 2025 to either conform to or decouple from the OBBBA tip and overtime provisions. Most bills are still pending. The cost to state revenue (an estimated $11 billion annually if all income-taxing states conformed) is the main reason most states have hesitated.
Did any state actively reject the federal deduction?
Yes. Colorado was originally on track to automatically conform but actively decoupled, preserving roughly $119 million in 2026 state revenue. Maine and the District of Columbia also explicitly chose not to conform.
How do I find my state's current status?
Check your state's department of revenue or taxation website, search for "OBBBA conformity" or "overtime deduction" in your state's news, or ask a local tax professional. Status can change as state legislatures pass conformity bills throughout 2026.
If my state conforms, how does that change my tax return?
If your state automatically conforms, the federal overtime deduction flows through to your state taxable income calculation, reducing your state tax bill in addition to your federal one. The mechanics depend on your state — most use the federal taxable income figure directly, so no separate state-level form is needed.
Do I still pay FICA on overtime?
Yes, in every state. The OBBBA does not exempt overtime from Social Security (6.2%) or Medicare (1.45%) taxes. These payroll taxes are federal and apply at the same rates in all states.
Does this affect my paycheck withholding now, or only at tax time?
For most workers, the deduction shows up at tax time when you file your federal return. The IRS released a 2026 Form W-4 with a Section 1b worksheet that allows you to adjust withholding if you expect significant overtime, but adjustments are optional.