Is Overtime Taxed in Idaho in 2026?
As of September 2026, Idaho has not issued official guidance on whether it recognizes the federal OBBBA overtime deduction (IRC §225). Idaho generally conforms to the Internal Revenue Code, which suggests the deduction may apply – but Idaho has decoupled from specific federal provisions in the past, and the Idaho State Tax Commission has not confirmed conformity with the overtime provision.
How Idaho'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 Idaho conformity is plausible but unconfirmed: Idaho generally conforms to the Internal Revenue Code on a rolling basis. When Congress adds a new provision to the IRC, Idaho's tax system typically picks it up unless the state specifically decouples. However, Idaho has exercised its decoupling authority for certain federal provisions in the past, and the Idaho State Tax Commission has not released guidance on whether IRC §225 applies for Idaho purposes.
What this means in practice: If Idaho conforms, workers benefit from a straightforward 5.3% savings on their qualifying overtime premium deduction (up to $662.50 for the maximum $12,500 deduction). If Idaho decouples, overtime premium pay remains fully taxable at 5.3%, and only the federal deduction provides relief.
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 |
| Idaho treatment | Does not conform |
| What qualifies? | Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees |
Worked Examples Comparing Federal and Idaho Treatment
Example 1: Mining worker (single filer, $50,000 income, $8,000 overtime premium)
Qualifying overtime premium: $8,000
Overtime deduction claimed: $8,000 (capped at $12,500)
Estimated federal tax savings: $960.00
Idaho return:
Idaho has not issued guidance on whether it recognizes the federal OBBBA overtime deduction. Idaho generally conforms to the Internal Revenue Code but may decouple from specific provisions. If Idaho conforms, the $8,000 deduction would reduce Idaho taxable income and save $424 in Idaho tax (at the flat 5.3% rate). If Idaho does not conform, the full $8,000 in overtime premium pay remains subject to Idaho income tax.
Example 2: Food processing worker (single filer, $80,000 income, $12,500 overtime premium – federal cap reached)
Qualifying overtime premium: $12,500
Overtime deduction claimed: $12,500 (capped at $12,500)
Estimated federal tax savings: $2,750.00
Idaho return:
Idaho has not issued guidance on whether it recognizes the federal OBBBA overtime deduction. If Idaho conforms, the $12,500 deduction would save $662.50 in Idaho tax (at the flat 5.3% rate). If Idaho does not conform, the full $12,500 in overtime premium pay remains subject to Idaho income tax at 5.3%.
Idaho's Rolling IRC Conformity
Idaho generally conforms to the Internal Revenue Code on a rolling basis, meaning new federal tax provisions are typically incorporated automatically unless Idaho specifically acts to decouple. This approach has historically meant that federal above-the-line deductions flow through to reduce Idaho taxable income. However, Idaho has exercised its decoupling authority for certain provisions, particularly when the revenue impact is significant.
The Idaho State Tax Commission has not yet addressed the OBBBA overtime deduction specifically. Workers and tax professionals are waiting for guidance, which could come through a Tax Commission ruling, administrative guidance, or legislative action during the next Idaho legislative session.
Idaho's Flat Tax Simplifies the Calculation
Idaho's flat 5.3% income tax rate means that the overtime deduction savings are easy to calculate: simply multiply the qualifying overtime premium amount by 5.3%. Unlike states with graduated brackets where the savings depend on which bracket the overtime income falls in, Idaho workers know exactly what percentage they would save. For the maximum $12,500 deduction, the Idaho savings would be $662.50; for $8,000 in overtime premium, the savings would be $424.
Key Industries Affected
Idaho's economy features several industries where overtime is common. Mining and mineral extraction operations, particularly in the Silver Valley and phosphate mining regions, regularly require overtime hours. Agriculture and food processing – including large operations from companies like Simplot and Lamb Weston – employ workers who frequently earn overtime. Construction has boomed in Idaho's rapidly growing Boise metropolitan area, and logging remains a significant employer in northern Idaho. All of these industries feature workers who would benefit from state-level recognition of the overtime deduction.
Related Tools
- No Tax on Overtime Calculator - calculate your federal overtime deduction
- Idaho Tax Guide - full state tax overview
- Idaho Paycheck Calculator
- Does Idaho Tax Tips?
- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map