You might have heard about the elimination of the 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, especially after the so-called "One Big Beautiful Bill" was signed.
But do you know how your state is weighing in on the no tax on overtime debate?
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States can follow the federal “no taxes on overtime” movement or decide to continue taxing overtime income.
Here are the states that have proposed bills relating to no taxes on overtime, and where those proposals are now.
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, and Wyoming.
Is overtime taxed more in Illinois?
Illinois has four active bills proposing no tax on overtime, “effective immediately” 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.
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 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 Lakes 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.
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 expensive for homeowners, but the state also has one of the highest income tax rates for retirees. No taxes on overtime could help provide tax relief for some residents.
Over half of full-time American workers work more than 40 hours a week, according to a 2019 Gallup poll.
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 House Finance Committee for review.
Does no tax on overtime start in Ohio?
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 House Ways and Means Committee.
Does overtime get taxed in Pennsylvania?
Pennsylvania lawmakers are seeking to exempt overtime pay from state taxes. Not only that, but the Coal State might implement no tax on tips, too, if signed into law:
- HB 1586, a House Republican bill, would provide a tax credit for state taxes on overtime pay.
- HB 1514, also Republican-led, would allow for a tax credit to offset taxes collected on tips.
Currently, both bills are in the House Finance Committee for consideration. If signed into law, either bill would be effective after December 31, 2025.
Does Alabama still tax overtime?
Although Alabama used to exempt overtime pay from state income taxes, that key piece of legislation expired earlier this year.
Alabama House Democrats had introduced a bill to preserve the income tax exemption on overtime pay. But House Republicans sought to let the provision expire in favor of other state tax breaks, such as reducing the state’s grocery tax, which is set to be cut from 3% to 2% in September.
State tax on overtime
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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