Does Maryland Tax Overtime in 2026?
Yes - Maryland fully taxes overtime pay in 2026. Maryland has not adopted the federal OBBBA overtime deduction (IRC §225). Maryland computes its income tax from Maryland adjusted gross income and has a history of selectively decoupling from federal tax provisions. All overtime premium pay remains subject to Maryland's graduated income tax rates (up to 6.5%) plus mandatory county income taxes ranging from 2.25% to 3.30%. The combined state-plus-county rate on overtime can approach 8%–10%.
How Maryland's Overtime Tax Treatment Works
Maryland's non-conformity to the OBBBA overtime deduction follows the same pattern as its treatment of other federal tax provisions: selective decoupling based on Maryland legislative priorities.
Maryland AGI computation: Maryland starts its income tax calculation from federal AGI but applies its own modification schedule. The OBBBA overtime deduction (IRC §225) reduces federal AGI, but Maryland has not issued guidance recognizing this deduction in its own AGI computation. Without explicit Comptroller guidance or enabling legislation, the deduction does not reduce Maryland taxable income.
Selective decoupling precedent: Maryland has previously decoupled from federal bonus depreciation, the QBID phase-in timing, and other federal provisions. This pattern of selective adoption means new federal deductions do not automatically apply in Maryland - each must be specifically evaluated and adopted.
County tax multiplication: Maryland's mandatory county income tax means non-conformity has a compounding effect. Overtime is fully taxable at both the state and county level, resulting in a combined rate of 7%–10% depending on the county and income bracket. This makes Maryland one of the highest-burden states for overtime workers who cannot benefit from the OBBBA deduction.
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 |
| Maryland treatment | Does not conform |
| What qualifies? | Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees |
Worked Examples Comparing Federal and Maryland Treatment
Example 1: Warehouse worker in Prince George's County (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
Maryland return:
Maryland does not recognize the federal overtime deduction. The full $8,000 in overtime premium pay is subject to Maryland's 4.75% state income tax plus Prince George's County's 3.20% piggyback tax. Estimated MD state tax on overtime: $380. Estimated county tax: $256. Combined state + county: approximately $636.
Example 2: Nurse in Baltimore County (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
Maryland return:
Maryland does not recognize the federal overtime deduction. The full $12,500 in overtime premium pay is subject to Maryland's 4.75% state income tax plus Baltimore County's 3.20% piggyback tax. Estimated MD state tax on overtime: $593.75. Estimated county tax: $400. Combined state + county: approximately $993.75.
Maryland's County Taxes Make Non-Conformity Especially Costly
Maryland is one of the few states where local income taxes are mandatory and significant. Every Maryland resident pays a county (or Baltimore City) income tax on the same taxable income used for the state tax. The rates for major jurisdictions in 2026:
- Montgomery County: 3.20%
- Baltimore County: 3.20%
- Howard County: 3.20%
- Prince George's County: 3.20%
- Baltimore City: 3.20%
- Anne Arundel County: 2.81%
- Frederick County: 3.30% (highest in state)
For a worker in the 4.75% state bracket in any of these major jurisdictions, the combined rate on overtime income is 7.95% or higher. In Frederick County, the combined rate reaches 8.05%. This is nearly double what a worker in neighboring Virginia (5.75%, no local income tax) would pay on the same overtime.
Maryland's 2026 High-Earner Brackets
Maryland's FY2026 budget act added two new high-earner brackets: 6.25% on income over $500,000 and 6.5% on income over $1,000,000, effective for tax year 2026. While most hourly workers earning overtime won't reach these brackets, professionals (such as physicians or attorneys) with high base salaries could see their overtime taxed at these elevated rates plus the county piggyback. The theoretical maximum combined rate in Frederick County could reach 9.8%.
Comparison with Neighboring Jurisdictions
Maryland's non-conformity and county tax structure make it notably more expensive than its neighbors for overtime workers. Virginia has not confirmed conformity but may recognize the OBBBA deduction through its conformity date, and Virginia has no local income tax. The District of Columbia likely conforms to the OBBBA deduction through its general IRC conformity and has no additional local tax layer. Maryland workers face the highest combined state-plus-local burden on overtime in the DMV region.
Related Tools
- No Tax on Overtime Calculator - calculate your federal overtime deduction
- Maryland Tax Guide - full state tax overview
- Maryland Paycheck Calculator
- Does Maryland Tax Tips?
- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map