Tax Year 2026Updated July 13, 2026

Does Mississippi Tax Overtime in 2026?

As of August 2026, Mississippi has not issued official guidance on whether it recognizes the federal OBBBA overtime deduction (IRC §225). Mississippi has its own income tax code, and the Mississippi Department of Revenue has not confirmed whether the deduction applies at the state level. Mississippi's income tax rate is 4.0% for 2026 (on income above $10,000), but the state is phasing out its income tax entirely – dropping to 0% by 2029 under HB 531.

How Mississippi's Overtime Tax Treatment Works

Mississippi has its own independent income tax code with state-specific deductions and exemptions. The state uses a simple two-tier rate structure: 0% on the first $10,000 of taxable income and 4.0% on everything above $10,000 (for tax year 2026, same thresholds for all filing statuses). Mississippi provides its own standard deduction ($2,300 single) and personal exemption ($6,000 single).

Whether Mississippi recognizes the OBBBA overtime deduction depends on how the state's conformity framework interacts with the new IRC §225. Mississippi's independent tax code means federal deductions do not necessarily flow through automatically. The Mississippi DOR would need to confirm conformity, or the legislature would need to enact it.

The income tax phase-out under HB 531 (2022) adds important context: the rate drops from 4.0% (2026) to 3.0% (2027) to 2.5% (2028) to 0% (2029). This may reduce Mississippi's urgency to address OBBBA conformity, since the income tax will be eliminated entirely within a few years.

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

Worked Examples Comparing Federal and Mississippi Treatment

Example 1: Catfish processing worker (single filer, $38,000 income, $5,500 overtime premium)

Federal return:
Qualifying overtime premium: $5,500
Overtime deduction claimed: $5,500 (capped at $12,500)
Estimated federal tax savings: $660.00

Mississippi return:
Mississippi's treatment of the federal overtime deduction is unknown. If Mississippi recognizes the deduction, state savings would be approximately $220 ($5,500 × 4.0% rate). If Mississippi does not conform, overtime remains fully taxable at 4.0%. No Mississippi DOR guidance has been issued as of August 2026. Note: Mississippi is phasing out its income tax entirely by 2029.

Example 2: Pascagoula shipyard welder (single filer, $70,000 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

Mississippi return:
Mississippi's treatment is unconfirmed. If the deduction applies, state savings would be approximately $500 ($12,500 × 4.0%). If Mississippi does not conform, the full $12,500 remains taxable at 4.0%. The federal savings of $2,750 apply regardless. By 2029, Mississippi will have no income tax, making this question moot.

Mississippi's Industrial Workforce and Overtime

Mississippi has a significant industrial economy where overtime is common. Ingalls Shipbuilding in Pascagoula – one of the state's largest private employers with over 10,000 workers – regularly requires overtime for naval vessel construction. Food processing (catfish in the Delta, poultry statewide), automotive manufacturing (Toyota in Blue Springs, Nissan in Canton), and oil refinery operations along the Gulf Coast all generate substantial overtime hours.

At the current 4.0% rate, the maximum state-level savings from the overtime deduction would be $500 for a single filer (4.0% × $12,500 cap). This amount decreases each year: $375 in 2027 (3.0%), $313 in 2028 (2.5%), and $0 from 2029 onward.

Income Tax Phase-Out Context

Mississippi's HB 531 (2022) set the state on a path to completely eliminate its individual income tax by 2029. This is significant context: even if Mississippi does not conform to the OBBBA overtime deduction, overtime workers will pay progressively less state tax each year, and no state income tax at all starting in 2029. Mississippi's low cost of living combined with no income tax by 2029 will make it one of the most tax-friendly states for hourly workers.

What to watch for: Mississippi taxpayers should monitor the Mississippi DOR website for income tax guidance for tax year 2026. Given the phase-out, Mississippi may or may not issue OBBBA-specific guidance. Taxpayers should consult a Mississippi tax professional for 2026 filing guidance.

Related Tools

No Tax on Overtime Calculator - calculate your federal overtime deduction
Mississippi Tax Guide - full state tax overview
Mississippi Paycheck Calculator
Does Mississippi 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 Mississippi tax overtime pay in 2026?

Mississippi's treatment of the federal OBBBA overtime deduction (IRC §225) is currently unknown. Mississippi has its own income tax code and the Mississippi Department of Revenue has not issued guidance on whether the state recognizes the federal overtime deduction. As of August 2026, this remains an open question – though the question becomes less significant each year as Mississippi phases out its income tax entirely.

What is the federal overtime deduction and who qualifies?

The federal OBBBA overtime deduction (IRC §225) allows W-2 employees to deduct qualifying overtime premium pay from federal AGI. It covers the additional pay above regular hourly rates for hours worked beyond 40 per week. The deduction is capped at $12,500 for single filers ($25,000 MFJ). Income phase-outs begin at $75,000 MAGI (single) and $150,000 (MFJ).

Is Mississippi phasing out its income tax?

Yes. Under HB 531 (2022), Mississippi is on a scheduled phase-down: 4.0% in 2026, 3.0% in 2027, 2.5% in 2028, and 0% in 2029. The overtime deduction conformity question becomes less significant each year as the rate drops, and will be moot once the income tax is eliminated. However, for tax year 2026, the 4.0% rate still applies to income above $10,000.

What Mississippi income tax rate applies to overtime pay?

Mississippi uses a simple two-tier system for 2026: 0% on the first $10,000 of taxable income and 4.0% on everything above $10,000 (same for all filing statuses). Since regular wages typically consume the $10,000 zero-rate threshold, virtually all overtime income falls in the 4.0% bracket.

What industries in Mississippi are most affected?

Mississippi has significant shipbuilding (Ingalls Shipbuilding in Pascagoula), food processing (catfish, poultry), manufacturing, healthcare, and oil refinery operations where overtime is common. Ingalls Shipbuilding alone employs over 10,000 workers and regularly requires overtime for naval vessel construction. These industrial workers earn substantial overtime premium pay.

Do I still get the federal overtime deduction on my federal return if I live in Mississippi?

Yes. The federal overtime deduction under IRC §225 applies on your federal Form 1040 regardless of where you live. You can deduct up to $12,500 (single) or $25,000 (MFJ) in qualifying overtime premium pay from your federal AGI. The open question is only about Mississippi's state-level treatment.