Tax Year 2026Updated July 13, 2026

Does Connecticut Tax Overtime in 2026?

Unknown – Connecticut has not issued guidance. As of August 2026, the Connecticut Department of Revenue Services (DRS) has not addressed whether Connecticut recognizes the federal OBBBA overtime deduction (IRC §225). Connecticut has its own income tax code and a history of selective conformity – adopting some federal provisions while decoupling from others. Until DRS publishes guidance, overtime premium pay is likely fully taxable at Connecticut rates of 2% to 6.99%. The federal deduction still applies on your federal return regardless, saving you up to $1,500–$2,750 in federal taxes.

How Connecticut's Overtime Tax Treatment Works

Connecticut computes income tax from Connecticut adjusted gross income (CT AGI), which starts with federal AGI and applies Connecticut-specific addition and subtraction modifications. When Congress creates a new above-the-line deduction like the OBBBA overtime deduction (IRC §225), it automatically reduces federal AGI.

The key question is whether CT DRS will require a Connecticut "addition modification" – adding the overtime deduction back to compute CT AGI. If no modification is required, the federal deduction flows through and reduces CT taxable income. If a modification is required, overtime remains fully taxable at the state level despite the federal deduction.

Connecticut has precedent for both approaches. The state has allowed some federal deductions to flow through while requiring addition modifications for others. Without published DRS guidance on the OBBBA overtime deduction, Connecticut workers cannot know which treatment applies.

Federal Overtime Deduction Quick Reference

Detail	Value
IRC Section	§225 (OBBBA)
Maximum deduction	$12,500 overtime ($25,000 MFJ)
Deduction type	Above-the-line (Schedule 1-A)
FICA still applies?	Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?	No (MFJ or Single/HoH only)
Effective dates	Jan 1, 2025 – Dec 31, 2028
Connecticut treatment	Does not conform
What qualifies?	Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees

Worked Examples Comparing Federal and Connecticut Treatment

Example 1: Manufacturing worker in Waterbury (single filer, $48,000 income, $7,000 overtime premium)

Federal return:
Qualifying overtime premium: $7,000
Overtime deduction claimed: $7,000 (capped at $12,500)
Estimated federal tax savings: $840.00

Connecticut return:
Connecticut has not issued guidance on the OBBBA overtime deduction. IF Connecticut conforms, this worker could save approximately $315 in state taxes ($7,000 × 4.5% marginal CT rate). IF Connecticut does not conform, the full $7,000 in overtime premium pay remains subject to Connecticut income tax at 4.5%, costing approximately $315. The federal savings of $840 apply regardless.

Example 2: Nurse at a major Connecticut hospital (single filer, $88,000 income, $12,500 overtime premium – federal cap reached)

Federal return:
Qualifying overtime premium: $12,500
Overtime deduction claimed: $12,500 (capped at $12,500)
Estimated federal tax savings: $2,750.00

Connecticut return:
Connecticut has not addressed OBBBA conformity. IF Connecticut conforms, this nurse could save approximately $688 in state taxes ($12,500 × 5.5% marginal CT rate). IF Connecticut does not, the full $12,500 remains subject to Connecticut income tax at 5.5%, costing $688. Connecticut's recapture provisions may increase effective rates for higher earners – consult CT DRS tables for your situation.

Connecticut's Overtime Workforce

Connecticut's economy includes significant sectors with regular overtime – healthcare (major hospital systems like Yale-New Haven, Hartford HealthCare), manufacturing (especially defense contractors like Electric Boat in Groton), and public safety (police, fire, EMS). These workers face Connecticut rates of 4.5–6% on most overtime income.

For a nurse earning $88,000 with $12,500 in overtime, the difference between conformity and non-conformity is approximately $688 per year in state taxes. For manufacturing workers earning $48,000 with $7,000 in overtime, the gap is approximately $315.

Connecticut's Recapture Provisions

Connecticut's income tax includes unusual "benefit recapture" provisions that claw back the benefit of lower tax brackets for higher-income earners. These are implemented through Tables C and D in the Circular CT and can effectively increase the marginal rate above the nominal bracket rate. If the overtime deduction reduces CT AGI, it could also reduce the recapture amount – creating a secondary benefit beyond the basic bracket savings.

Connecticut Paid Leave – A Separate Consideration

Connecticut Paid Leave (CTPL) contributions of 0.5% apply to all wages including overtime. This is a payroll tax separate from income tax and is unaffected by any income tax deduction. Connecticut overtime workers pay CTPL on their full overtime wages regardless of the OBBBA deduction's state-level treatment.

Related Tools

No Tax on Overtime Calculator - calculate your federal overtime deduction
Connecticut Tax Guide - full state tax overview
Connecticut Paycheck Calculator
Does Connecticut Tax Tips?
W-2 Code TP: Tips Reporting Guide
W-2 Code TT: Overtime Reporting Guide
All 51 States: Tips & Overtime Tax Map

Frequently Asked Questions

Does Connecticut conform to the federal OBBBA 'no tax on overtime' deduction?

As of August 2026, Connecticut has not issued guidance on whether it recognizes the federal overtime deduction (IRC §225). The Connecticut DRS has not published any special notice, informational publication, or ruling on OBBBA conformity. Connecticut has a history of selective conformity to federal tax provisions.

How does Connecticut's selective conformity affect overtime workers?

Connecticut computes income starting from Connecticut AGI, which is derived from federal AGI with CT-specific modifications. If CT DRS does not require an 'addition modification' for the OBBBA overtime deduction, it could flow through automatically (since it reduces federal AGI). If DRS does require a modification, overtime remains fully taxable. Without guidance, the answer is unknown.

What Connecticut income tax rate applies to overtime pay?

Connecticut uses 7 graduated brackets: 2% on the first $10,000, 4.5% on $10,000–$50,000, 5.5% on $50,000–$100,000, 6% on $100,000–$200,000, and higher rates above $200,000. Most overtime workers earning $40,000–$90,000 total pay marginal rates of 4.5–5.5% on their overtime income. Connecticut also has recapture provisions that can increase effective rates.

What should Connecticut overtime workers do while waiting for guidance?

Claim the full federal overtime deduction (up to $12,500 single / $25,000 MFJ) on your federal return – this applies regardless of Connecticut's position. For your Connecticut return, treat overtime as fully taxable until DRS issues guidance. Monitor portal.ct.gov/drs for updates. If conformity is later confirmed, file an amended CT return.

Does Connecticut Paid Leave (CTPL) also apply to overtime pay?

Yes. Connecticut Paid Leave contributions (0.5% of all wages, 100% employee-funded) apply to overtime pay regardless of any income tax deduction. This is a separate payroll withholding that is not affected by the OBBBA overtime deduction in any scenario.

When might Connecticut address the OBBBA overtime deduction?

There is no published timeline. CT DRS could issue guidance via a special notice at any time. The Connecticut Legislature (in session January–June) could pass conformity legislation in 2027. The 2026 Circular CT (IP 2026(1)) does not mention OBBBA conformity. Monitor portal.ct.gov/drs for updates.