Yes, there is state and federal tax on overtime. However, there is a new tax deduction, called No Tax On Overtime, that allows eligible taxpayers to deduct the premium portion of overtime pay (typically the ½ of the time and ½ in overtime pay), up to $12,500 ($25,000 for joint filers) for tax years 2025 through 2028.

To qualify for the deduction, you must include a valid Social Security number on your tax return. This deduction is not available for taxpayers who are married filing separately, and there are also income limits. This deduction starts phasing out at a modified adjusted gross income (MAGI) of $150,000 ($300,000 for joint filers). 

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Sharon Brucker, CPA Senior Tax Research Analyst Published on: December 17, 2025
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*This content is for general informational purposes only. It is not intended to be comprehensive and should not be construed as professional tax or financial advice for any specific individual tax situation. Taxpayers should always consult a qualified professional for individual guidance. This information constitutes a solicitation under the Treasury Department's Circular 230. Most offices are independently owned and operated.