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Tax Year 2026Updated July 13, 2026

Is Overtime Taxed in Washington DC in 2026?

As of September 2026, the District of Columbia has not issued official guidance on whether it recognizes the federal OBBBA overtime deduction (IRC §225). DC uses federal adjusted gross income as its starting point for calculating DC taxable income, which suggests the federal overtime deduction may automatically flow through – but the DC Council could choose to decouple, and the Office of Tax and Revenue has not confirmed conformity.

How District of Columbia's Overtime Tax Treatment Works

The federal OBBBA overtime deduction (IRC §225) allows eligible workers to deduct up to $12,500 ($25,000 for married filing jointly) in qualifying overtime premium pay from federal adjusted gross income. This deduction covers only the premium portion of overtime pay – the extra 0.5x above the regular hourly rate – not the base-rate hours worked beyond 40.

Why DC conformity is likely but unconfirmed: DC computes taxable income starting from federal AGI, then applying DC-specific adjustments. When a federal above-the-line deduction reduces AGI, it typically flows through to reduce DC taxable income automatically – unless DC specifically decouples. The DC Council has not passed legislation decoupling from IRC §225, but the Office of Tax and Revenue has also not issued a ruling or guidance confirming conformity.

What this means in practice: If DC conforms (the more likely scenario based on its AGI-based system), DC workers would benefit from reduced DC taxes on overtime premium pay in addition to their federal savings. If DC decouples, overtime premium pay would remain fully taxable on the DC return at rates up to 10.75%, and only the federal deduction would provide relief.

Federal Overtime Deduction Quick Reference

DetailValue
IRC Section§225 (OBBBA)
Maximum deduction$12,500 overtime ($25,000 MFJ)
Deduction typeAbove-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 datesJan 1, 2025 – Dec 31, 2028
District of Columbia treatmentDoes not conform
What qualifies?Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees

Worked Examples Comparing Federal and District of Columbia Treatment

Example 1: Federal contractor (single filer, $50,000 income, $8,000 overtime premium)

Federal return:
Qualifying overtime premium: $8,000
Overtime deduction claimed: $8,000 (capped at $12,500)
Estimated federal tax savings: $960.00

District of Columbia return:
DC has not issued guidance on whether it recognizes the federal OBBBA overtime deduction. If DC conforms (likely, since DC starts from federal AGI), the $8,000 deduction would reduce DC taxable income and save an estimated $680 in DC tax (at the 8.5% bracket). If DC does not conform, the full $8,000 in overtime premium pay remains subject to DC income tax.

Example 2: Government worker (single filer, $80,000 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

District of Columbia return:
DC has not issued guidance on whether it recognizes the federal OBBBA overtime deduction. If DC conforms via its federal AGI starting point, the $12,500 deduction would reduce DC taxable income and save an estimated $1,062 in DC tax (at the 8.5% bracket). If DC does not conform, the full $12,500 in overtime premium pay remains subject to DC income tax at rates up to 8.5%.

DC's Federal AGI Starting Point and Overtime Deduction Implications

The District of Columbia calculates individual income tax starting from federal adjusted gross income. This is significant because the federal overtime deduction (IRC §225) is an above-the-line deduction that directly reduces AGI. In states that use federal AGI as their starting point, above-the-line deductions typically flow through automatically unless the state explicitly adds them back.

DC has a history of generally conforming to federal tax changes through its AGI-based system. However, DC has also selectively decoupled from certain federal provisions in the past when they would significantly reduce DC revenue. The OBBBA overtime deduction could affect a meaningful number of DC taxpayers, particularly federal contractors and government-adjacent workers who earn overtime.

DC's High Rates Make Conformity Impactful

DC's top marginal rate of 10.75% (on income above $500,000) and its 8.5% rate on income between $60,000 and $250,000 mean that DC conformity would provide substantial additional savings beyond the federal deduction. For a worker in the 8.5% bracket claiming the maximum $12,500 deduction, DC conformity would save approximately $1,062 in DC taxes. For high earners in the 10.75% bracket, savings could reach $1,344.

Government and Contractor Workforce

DC's economy is dominated by the federal government and its supporting contractors. Many of these workers – including security personnel, IT support staff, administrative workers, and facilities maintenance employees – are overtime-eligible and regularly work beyond 40 hours per week. The overtime deduction is particularly relevant to this workforce, making DC's conformity decision impactful for a large share of its tax base.

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Frequently Asked Questions

Does Washington DC tax overtime pay in 2026?
Yes, DC taxes overtime pay as ordinary income. The open question is whether DC will recognize the new federal OBBBA overtime deduction (IRC §225) to reduce DC taxable income. As of September 2026, DC's Office of Tax and Revenue has not issued official guidance on conformity with the federal overtime provision.
Does DC conform to the federal overtime deduction?
DC's conformity status is unknown. DC generally uses federal adjusted gross income (AGI) as the starting point for calculating DC taxable income, which suggests the federal overtime deduction (which reduces AGI) would automatically flow through. However, the DC Council could choose to decouple from this provision, and the Office of Tax and Revenue has not confirmed either way.
What DC income tax rate applies to overtime pay?
DC uses graduated rates: 4% on the first $10,000, 6% on $10,000–$40,000, 6.5% on $40,000–$60,000, 8.5% on $60,000–$250,000, 9.25% on $250,000–$500,000, and 10.75% above $500,000. Since most overtime earners have regular wages that fill the lower brackets, overtime income typically falls in the 8.5% or higher bracket.
How much could DC workers save if the overtime deduction applies at the DC level?
If DC conforms to the federal overtime deduction, a worker with $12,500 in qualifying overtime premium pay in the 8.5% DC bracket could save approximately $1,062 in DC taxes on top of their federal savings. A worker in the 10.75% bracket could save up to $1,344 on $12,500 of overtime premium. The actual savings depend on which DC bracket the overtime income falls in.
Who in DC earns the most overtime?
DC's workforce includes large numbers of federal government contractors, security personnel, hospitality workers, healthcare professionals, and law enforcement officers – many of whom regularly work overtime. Government contractors and federal employees who are overtime-eligible stand to benefit significantly if DC conforms to the federal overtime deduction.
What should DC workers do while conformity is uncertain?
DC workers should claim the federal overtime deduction (IRC §225) on their federal return regardless of DC's position, as the federal deduction is available in all states. For DC taxes, workers should monitor guidance from the DC Office of Tax and Revenue. If DC does not conform, overtime remains fully taxable on the DC return. Consulting a DC tax professional is recommended for 2026 planning.