You may have heard about eliminating tax on overtime at the federal level. Overtime workers are entitled to 1.5 times their regular rate for working more than 40 hours per week.
However, what’s happening with taxes on overtime pay has sparked national debate. There’s talk about whether “no tax on overtime” will help workers or contribute to the federal deficit and incentivize employers to use longer hours instead of hiring additional employees.
But how is your state weighing in on the overtime tax debate?
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States can follow the federal “no taxes on overtime” movement or decide to continue taxing overtime income. One income-taxed state already excludes overtime pay.
Here are the states that have proposed bills relating to no taxes on overtime and where those proposals are now.
Disclaimer
States with no income taxes were excluded from this list as they do not tax overtime. These include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington state, and Wyoming.
Connecticut overtime tax
Connecticut lawmakers are seeking to exempt overtime pay from state income taxes. Both state House and Senate legislatures have proposed “no taxes on overtime pay:”
- SB 651, exempting any overtime income earned by an employee, is sponsored by Sen. MD Rahman (D-Manchester).
- HB 5024, exempting overtime income earned by an employee, is sponsored by House Rep. Brian Lanoue (R-Griswold).
No taxes on overtime would be a big deal in Connecticut, since, just a couple of years ago, about $305.4 million in overtime was paid to state employees alone. If signed into law, the bills could affect many Connecticut workers, not just state employees. But neither bill has an enactment date yet.
Tax on Georgia overtime pay
Georgia is considering a bill to exempt overtime pay from state income tax. HB 375, sponsored by House Republicans, would exempt any “full-time employee paid by an hourly wage as compensation for work performed in excess of 40 hours a week.”
If signed into law, no taxes on overtime could be enacted as early as January 1, 2026. Currently, the bill is being read in the Georgia House.
Is overtime taxed more in Illinois?
Illinois has four active bills proposing no tax on overtime, with “effective immediately” dates if signed into law:
- SB 174, sponsored by Senate Republicans, would deduct any overtime wages paid during the taxable year.
- HB 2734, sponsored by Rep. Christopher “C.D.” Davidsmeyer (R-Murrayville), would deduct overtime wages included in the taxpayer’s federal adjusted gross income (AGI).
- HB 1899, sponsored by House Republicans, would create a tax deduction for overtime compensation included in a taxpayer’s AGI.
- HB 1750, sponsored by Rep. Joe C. Sosnowski (R-Rockford), would not only exclude overtime from wages but also exempt gratuities (tips) from state income taxation.
All four “no tax on overtime” bills are being read in their respective chambers and have yet to crossover.
Iowa tax on overtime
Iowa House Democrats are not only considering no tax on overtime but also seeking no state taxes on tips. Together, the two bills would:
- Exempt overtime pay that is compensated at 1.5 times the regular rate but not exceeding twice the rate.
- Exempt cash tips from state income tax.
If signed into law, both bills could go into effect as early as January 1, 2026. Iowa House Republicans have also proposed exempting overtime pay from state taxes, but that bill hasn’t moved since passing out of subcommittee two months ago.
Is overtime pay taxed in Kentucky?
Kentucky recently lowered its income tax rate and now has a bill to exempt tax on overtime. HB 26, sponsored mainly by House Republicans, excludes taxes on overtime and has other key tax features:
- Employers would separately state overtime wages and tip amounts on the state portion of W-2s.
- No tax on tips, including those from cash, electronic payments, money received through tip pools, and tip-sharing agreements.
If signed into law, the proposal could start on January 1, 2026, and continue through January 1, 2030. However, the Kentucky bill has only been recently introduced.
Does overtime get taxed more in Massachusetts?
Massachusetts might exempt overtime from the Commonwealth’s income taxes with HB 3173. Sponsored by Rep. Marc Lombardo (R-Billerica), the bill could exclude overtime compensations from income tax in a place among those with the highest income tax rates for retirees. However, only hourly employees would be included — not salaried. There is no enactment date yet for Massachusetts’ “no tax on overtime” bill.
Michigan rules for overtime tax on pay
Michigan legislators have proposed a no-tax on overtime bill. SB 125, sponsored by state Senate Republicans, seeks to deduct overtime compensation from the state’s taxable income.
The Great Lake State recently raised base pay for hourly workers. Tipped employees went from $4.01 to $4.74 per hour, while nontipped worker rates went up to $12.48 from $10.56. No tax on overtime could provide further relief for hourly employees in 2025.
Is overtime taxed more in Minnesota?
Minnesota Senate Republicans are seeking to eliminate tax on overtime pay, including wages, salaries, tips, and other employee compensation. If enacted, Minnesota workers could see their overtime income exempt from state taxes as early as January 1, 2025 (retroactive). Currently, the bill is still in the Senate.
Tax on overtime in Missouri
Missouri Senate Rep. John Simmons (R-Washington) seeks to end the state tax on tips and overtime pay. If enacted, the bill would be effective starting January 1, 2026.
However, in recent years, two prior bills sought to end taxes on overtime. Both bills failed to pass due to concerns about fiscal impact.
Overtime pay tax in Nebraska
Nebraska has proposed bills to exclude overtime and tips from state income taxes. LB 28 and LB 30, sponsored by Sen. Danielle Conrad (D-Lincoln), would do the following:
- Exempt overtime pay when calculating income for state taxes.
- Subtract tip payments when calculating an individual’s income.
If signed into law, the bills could go into effect in 2025.
Overtime taxed in New Jersey
New Jersey is looking to exempt overtime pay from state income taxes. The Republican-sponsored bill would exclude overtime compensation from gross income as early as January 1 following the date of enactment.
The Garden State has some of the highest taxes in the nation. Not only is New Jersey an expensive state for homeowners to live in, but the state has one of the highest income tax rates for retirees. No taxes on overtime could help provide tax relief for some residents.
How is overtime taxed in New York?
New York is also considering a “no tax on overtime” proposal. State Senate Republicans introduced two bills eliminating state taxes on overtime and tips:
- SB 3914 would eliminate state income taxes on overtime pay.
- SB 587 would eliminate state income taxes on cash tips.
Both bills could provide tax relief in a state that is one of the most expensive to live in and has some of the highest sales taxes across all U.S. states.
Overtime pay is taxed in North Carolina
North Carolina has a bill that includes more than no tax on overtime. Republican-led HB 11 would provide:
- No tax on overtime pay.
- An exemption of state income taxes on tips.
- An exemption on the first $2,500 in bonuses from state income taxes.
Bonus pay might include hourly and salaried workers. The bill has been passed to the state’s House Finance Committee for review.
Ohio tax on overtime pay
Ohio might consider ending state tax on overtime. HB 39, proposed by House Republicans, would amend Ohio’s tax policy to allow a deduction for overtime wages.
This would effectively make overtime pay state tax-exempt. If signed into law, the bill could go into effect as early as January 1, 2026. However, it was only recently referred to the state's House Ways and Means Committee.
How much are overtime taxes in Oregon?
Oregon is considering no tax on overtime pay. Sponsored by House Republicans HB 2234 would exempt state income taxes on overtime compensation beginning on or after January 1, 2026, but before January 1, 2032.
And that’s not all. The Beaver State is also looking to exempt tax from tips for hospitality and service industry workers. HB 3914 has the same enactment date as the “no tax on overtime” bill: After January 1, 2026, but before January 2032.
Both bills currently sit in the House.
South Carolina tax on overtime
South Carolina has three bills seeking to end state tax on overtime pay:
- House Republicans sponsored HB 3793, exempting overtime pay from state income taxes.
- House Rep. Thomas Beach (R-Piedmont) has proposed HB 3298 to make overtime compensation state tax-exempt.
- HB 3368, sponsored by House Republicans, would exempt overtime pay from taxes and exclude “certain bonuses” from state taxable income. This includes the first $2,500 bonus income received in the tax year.
All three bills could be effective immediately and currently sit in the Committee on Ways and Means.
Do you pay extra tax on overtime in West Virginia?
West Virginia is considering exempting overtime from state income taxes. The “no tax on overtime bill,” sponsored by Senate Republicans, is currently in the Finance Committee. West Virginia has a similar bill sponsored by Republicans in the House.
Both bills could be effective as early as 2026. West Virginia is also one of the states considering no taxes on tips this year.
Which states do not tax overtime?
Thanks to a law that became effective last year, Alabama does not impose state income tax on overtime pay. However, the legislation has an expiration date of June 30, 2025. If the provision is not extended, Alabama could again tax overtime compensation.
Alabama House Democrats have introduced a bill to preserve the income tax exemption on overtime pay. But state House Republicans seek to let the provision expire in favor of other state tax breaks, like reducing the state’s grocery tax.
Mississippi and Virginia reject no tax on overtime
Several states have decided against eliminating taxes on overtime.
- Mississippi. HB 504, sponsored by Rep. Bryant Clark (D-Pickens), proposed to exclude overtime pay from state income taxes, but the bill died in committee earlier this year.
- Virginia. HB 1965, sponsored by Del. Anne Ferrell Tata (R-Virginia Beach), proposed eliminating Virginia taxes on tips and overtime, but the bill failed in the 2025 General Assembly session.
More states may weigh in on the “no tax on overtime” debate. State legislatures will meet throughout the year, and overtime income could be on the slate of bills proposed. More than just your federal tax bill could be on the line — so stay tuned.
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