Does New York Tax Overtime in 2026?
Unknown - New York has not announced whether it will conform to the federal overtime deduction. As of August 2026, the New York Department of Taxation and Finance (DTF) has not issued guidance on whether the OBBBA overtime deduction (IRC §225) will reduce New York taxable income. New York maintains its own tax code and does not automatically adopt all federal changes. With state rates from 4% to 10.9% and NYC adding 3.078%–3.876% on top, the stakes for New York workers are among the highest in the nation.
How New York's Overtime Tax Treatment Works
New York calculates state taxable income starting from federal adjusted gross income (AGI), then applies New York-specific additions and subtractions. When the federal overtime deduction reduces your federal AGI, whether that lower AGI automatically flows through to your New York return depends on New York's conformity to the specific IRC provision.
New York's tax law references a specific IRC conformity date. New federal deductions like the OBBBA overtime provision (IRC §225) require either legislative action to update the conformity date or administrative guidance from the NY DTF confirming the deduction is recognized. As of August 2026, neither has occurred for the overtime deduction.
If NY does conform, the federal overtime deduction would reduce your federal AGI, and that lower AGI would serve as the starting point for your New York return - automatically reducing state tax. If NY does not conform, the state would require an addition modification to add the overtime deduction back, keeping overtime fully taxable at state rates.
The NYC factor: New York City's separate income tax (3.078%–3.876%) generally follows the same starting point as the state return. Non-conformity at the state level almost certainly means non-conformity at the city level as well. NYC workers earning overtime face a combined state-plus-city rate of roughly 8.5%–9.9% on overtime premium pay - potentially the highest combined state-and-local overtime tax burden of any jurisdiction in the United States.
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 |
| New York treatment | Does 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)
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 announced whether it will conform to the federal overtime deduction. If NY does NOT conform, the full $8,000 in overtime premium pay remains subject to New York income tax at 5.5%, costing approximately $440 in state tax. NYC residents would owe an additional $264 or more in city income tax (at roughly 3.3%). If NY DOES conform, this worker would save approximately $704 in combined state and city tax.
Example 2: Hospital nurse (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
New York return:
New York has not announced conformity with the federal overtime deduction. If NY does NOT conform, the $12,500 in overtime premium is taxable at approximately 5.5%–6% (crossing the $80,650 bracket threshold), costing roughly $700 in state tax. NYC residents face an additional $438 or more in city income tax. Combined state + city tax on overtime: approximately $1,138 if NY does not conform.
New York's Conformity Question Is the Biggest in the Country for Overtime
Several factors make New York's overtime conformity decision uniquely important:
- High state rates: NY rates of 4%–10.9% are among the highest in the nation. Most workers earning overtime fall in the 5.5%–6% range.
- NYC income tax layers on: New York City's separate income tax of 3.078%–3.876% applies on top of state tax. The combined state + NYC rate for most overtime workers is approximately 8.5%–9.9%, the highest state-and-local rate on wage income in the U.S.
- Large affected workforce: New York's economy relies heavily on industries where overtime is common: healthcare (hospital nurses and aides), construction, transportation, law enforcement, and emergency services. Hundreds of thousands of workers across the state earn regular overtime.
Yonkers Surcharge Adds Another Layer
Yonkers residents pay a surcharge equal to 16.75% of their New York State income tax liability. If overtime remains fully taxable in New York, the Yonkers surcharge applies to the state tax generated by overtime income. A Yonkers resident in the 5.5% state bracket effectively pays 5.5% + 0.92% surcharge + NYC tax (if applicable) on overtime premium pay.
What Workers Should Do Now
Until New York announces its position, workers should plan conservatively and assume overtime may be fully taxable at the state and local level. The federal overtime deduction still applies on the federal return regardless of New York's decision. Workers should monitor tax.ny.gov for guidance and consult a tax professional about estimated tax payments that account for both scenarios.
Related Tools
- No Tax on Overtime Calculator - calculate your federal overtime deduction
- New York Tax Guide - full state tax overview
- New York Paycheck Calculator
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- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map