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Tax Year 2026Updated July 13, 2026

Does New York Tax Overtime in 2026?

Unknown - New York has not issued guidance, and the federal deduction does not lower New York tax on its own. New York starts from federal AGI, and the overtime deduction (IRC §225) is taken after AGI. Unless New York enacts its own subtraction, overtime is taxed at the state rates of 3.9% to 10.9%, and NYC residents add 3.078% to 3.876% in city tax. The federal deduction still applies on your federal return.

How New York's Overtime Tax Treatment Works

New York income starts from federal adjusted gross income (AGI), then applies New York additions and subtractions (IT-2105-I, line 1).

The federal overtime deduction under IRC §225 is figured on Schedule 1-A after AGI and subtracted on Form 1040 line 13b. It lowers federal taxable income, not federal AGI. Because the number New York starts from does not change, New York tax does not change either. There is nothing to "add back"; the deduction never reaches the New York return.

For New York workers to get state relief on overtime, New York would have to enact its own subtraction. As of this update, the Department of Taxation and Finance has issued no guidance and no such subtraction exists.

The NYC factor: New York City's resident tax (3.078% to 3.876%) is figured from the same New York income, so overtime taxable for the state is also taxable for the city.

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
New York treatmentDoes not conform
What qualifies?Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees

Worked Examples Comparing Federal and New York Treatment

Example 1: NYC construction worker (single filer, $55,000 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

New York return:
New York has not issued guidance on the federal overtime deduction, and the deduction does not reach the New York return on its own. The full $8,000 overtime premium stays in New York taxable income at 5.4%, about $432 in state tax. An NYC resident would owe about $306 more in city tax. Those amounts would go away only if New York enacted its own subtraction for overtime.

Example 2: Hospital nurse (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

New York return:
The full $12,500 overtime premium stays taxable in New York at 5.4%, about $675 in state tax. An NYC resident would owe about $485 more in city tax, for roughly $1,160 combined. New York relief would require a New York subtraction; the federal deduction alone does not change the New York figure.

Why the New York Answer Matters for Overtime Workers

  1. State rates: New York's 2026 rates run from 3.9% to 10.9%. Most full-time workers' top dollars fall in the 5.4% or 5.9% bracket.
  2. NYC tax on top: NYC residents add 3.078% to 3.876%, figured from the same income.
  3. Industries with regular overtime: healthcare, construction, transportation, and public safety employ many New York workers who earn overtime.

Yonkers

Yonkers residents pay a surcharge figured as a percentage of their New York State tax, so overtime that stays taxable for the state also raises the Yonkers surcharge.

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Frequently Asked Questions

Does New York conform to the federal OBBBA overtime deduction?
New York has not issued guidance on the federal overtime deduction under IRC §225. Because of how the New York return is built, the federal deduction does not lower New York tax on its own: New York would have to enact its own subtraction for overtime. Until it does, overtime pay remains taxable on the New York return.
Why doesn't the federal overtime deduction reduce New York tax automatically?
New York income starts from federal adjusted gross income (AGI), plus or minus New York additions and subtractions (IT-2105-I, line 1). The federal overtime deduction is figured on Schedule 1-A after AGI and subtracted on Form 1040 line 13b, so it lowers federal taxable income but not federal AGI. The number New York starts from never changes, so New York tax is unchanged unless New York adds a subtraction of its own.
What New York income tax rate applies to overtime pay?
New York has 9 brackets from 3.9% to 10.9% for 2026. For a single filer, taxable income from $13,900 to $80,650 is taxed at 5.4%, and from $80,650 to $215,400 at 5.9%. Overtime is taxed at the same rates as other wages.
Does NYC income tax apply to overtime pay on top of New York State tax?
Yes. New York City residents pay city income tax of 3.078% to 3.876% on top of state tax, figured from the same New York income. Overtime that stays taxable for the state stays taxable for the city.
What is the federal overtime deduction cap?
The federal deduction under IRC §225 covers up to $12,500 of qualified overtime premium ($25,000 married filing jointly). Only the premium portion above your regular rate qualifies. It applies on your federal Form 1040 regardless of where you live, and reduces federal taxable income, not AGI.
When might New York act?
New York's legislative session typically runs January through June. State relief for overtime would take a New York subtraction enacted by the legislature. There is no set deadline. Check tax.ny.gov for any announcement.