Tax Year 2026Updated July 13, 2026

Does Delaware Tax Overtime in 2026?

Unknown – but structural flow-through is plausible. As of August 2026, the Delaware Division of Revenue has not issued guidance on the federal OBBBA overtime deduction (IRC §225). Delaware starts its income tax calculation from federal adjusted gross income, which means the overtime deduction – which reduces federal AGI – could flow through automatically. However, Delaware retains the authority to decouple, and no official confirmation has been issued. Until guidance is published, overtime pay may or may not be deductible on your Delaware return. The federal deduction still applies on your federal return, saving you up to $1,500–$2,750 in federal taxes.

How Delaware's Overtime Tax Treatment Works

Delaware's income tax starts from federal adjusted gross income (AGI). When you claim the federal OBBBA overtime deduction (IRC §225) on your Form 1040, your federal AGI decreases. Delaware Form 200-01 starts from that lower AGI figure.

Unless Delaware specifically adds the overtime deduction back through a "modification," the lower AGI carries through to Delaware taxable income. This structural connection makes automatic flow-through the default pathway – but "default" is not "confirmed."

Delaware has the authority to decouple from specific federal provisions by requiring addition modifications. The Division of Revenue has not announced whether the OBBBA overtime deduction will be allowed to flow through or will require modification. This silence creates uncertainty for Delaware overtime workers and their tax preparers.

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
Delaware treatment	Does not conform
What qualifies?	Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees

Worked Examples Comparing Federal and Delaware Treatment

Example 1: Warehouse worker (single filer, $46,000 income, $6,500 overtime premium)

Federal return:
Qualifying overtime premium: $6,500
Overtime deduction claimed: $6,500 (capped at $12,500)
Estimated federal tax savings: $780.00

Delaware return:
Delaware has not confirmed whether the OBBBA overtime deduction flows through to the state return. Because Delaware starts from federal AGI, the deduction may automatically reduce Delaware taxable income – but the Division of Revenue has not confirmed this. IF it flows through, this worker saves approximately $361 ($6,500 × 5.55%). IF Delaware blocks the flow-through, the full $6,500 is taxed at 5.55%, costing $361.

Example 2: Chemical plant operator near New Castle (single filer, $78,000 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

Delaware return:
Delaware's conformity status is unconfirmed. IF the deduction flows through Delaware's federal AGI starting point, this worker saves approximately $825 ($12,500 × 6.6% top DE rate). IF Delaware requires an addition modification, $12,500 remains fully taxable at 6.6%. Delaware's structural connection to federal AGI makes flow-through plausible but uncertain without official guidance.

Delaware's Federal AGI Connection – Likely but Unconfirmed Flow-Through

Delaware is structurally positioned for the OBBBA overtime deduction to flow through automatically. States that start from federal AGI generally allow federal above-the-line deductions unless they explicitly decouple. Delaware has not explicitly decoupled from IRC §225 – but it also has not confirmed the flow-through.

For tax preparers, this creates a judgment call. Some may take the position that the deduction flows through by default (since Delaware has not issued a modification). Others may take the conservative position that without explicit confirmation, overtime should be treated as fully taxable. The Division of Revenue guidance would resolve this ambiguity.

Delaware's Industrial and Service Workforce

Delaware's economy includes significant manufacturing (chemical plants near New Castle, food processing), healthcare, and financial services – all sectors with regular overtime. Workers at refineries, hospitals, and warehouses along the I-95 corridor regularly earn overtime that falls in the 5.55–6.6% Delaware brackets.

For a worker at the $12,500 federal cap earning at the 6.6% top rate, the difference between conformity and non-conformity is $825 per year in Delaware taxes.

Wilmington Wage Tax – A Separate Layer

Workers in Wilmington face an additional city wage tax of approximately 1.25% on all earned income including overtime. This tax operates independently of the Delaware income tax and is not reduced by any income tax deduction. Wilmington overtime workers should factor this additional cost into their planning.

Related Tools

No Tax on Overtime Calculator - calculate your federal overtime deduction
Delaware Tax Guide - full state tax overview
Delaware Paycheck Calculator
Does Delaware 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 Delaware conform to the federal OBBBA 'no tax on overtime' deduction?

As of August 2026, Delaware has not issued official guidance. Delaware starts from federal AGI, so the federal overtime deduction (IRC §225) – which reduces federal AGI – could flow through automatically. However, the Division of Revenue has not confirmed whether the deduction is allowed or requires a modification for Delaware purposes.

Why might the overtime deduction automatically apply in Delaware?

Delaware uses federal AGI as the starting point for state taxable income. The OBBBA overtime deduction reduces federal AGI before it reaches the Delaware return. Unless Delaware specifically adds the deduction back through an addition modification, the lower AGI flows through. This default trajectory favors flow-through, but confirmation is needed.

What Delaware income tax rate applies to overtime pay?

Delaware uses 7 graduated brackets: 0% on the first $2,000, then rates of 2.2%, 3.9%, 4.8%, 5.2%, 5.55%, and 6.6% on income above $60,000. Most overtime workers have their overtime income taxed at the 5.55% or 6.6% marginal rate, since regular wages typically exhaust the lower brackets.

What should Delaware overtime workers do while waiting for guidance?

Claim the full federal overtime deduction on your Form 1040 – this saves you federal taxes regardless of Delaware's position. For your Delaware return, the conservative approach is to treat overtime as fully taxable. Given Delaware's federal AGI starting point, a reasonable argument exists for flow-through – but confirming with a tax professional is advisable until the Division of Revenue publishes guidance.

Does Wilmington's wage tax apply to overtime pay?

Yes. Wilmington's city wage tax (approximately 1.25%) applies to all earned income including overtime for residents and non-residents working in the city. This tax is separate from the Delaware income tax and is not affected by any income tax deduction.

How does Delaware's overtime treatment compare to neighboring states?

Delaware's federal AGI starting point puts it in a structurally more favorable position than Pennsylvania (which has a flat 3.07% tax on all earned income with no above-the-line deductions) or New Jersey (which has addressed OBBBA conformity separately). Maryland also starts from federal AGI. Workers commuting across state lines should check each state's specific treatment.