Tax Year 2026Updated July 13, 2026

Does Tennessee Tax Overtime in 2026?

No - Tennessee does not tax overtime because it has no state income tax on wages. Tennessee has never taxed wage income. The now-repealed Hall Tax applied only to interest and dividend income, and a 2014 constitutional amendment prohibits any future tax on earned income. Overtime pay owes $0 in Tennessee state tax. Tennessee workers still benefit from the federal OBBBA overtime deduction (IRC §225), which allows deducting up to $12,500 ($25,000 MFJ) in overtime premium pay from federal adjusted gross income.

How Tennessee's Overtime Tax Treatment Works

Tennessee is one of nine states with no state income tax on wages. Tennessee's situation is unique because it previously had the Hall Tax on interest and dividend income (repealed January 1, 2021), but it has never taxed wages, salaries, or overtime pay. In 2014, voters approved a constitutional amendment (Amendment 3) that prohibits any state or local tax on payroll or earned income.

Federal benefit still applies: Tennessee workers can claim the federal OBBBA overtime deduction (IRC §225) on their federal return, deducting up to $12,500 ($25,000 MFJ) in qualifying overtime premium pay from federal AGI.

No employee payroll taxes: Tennessee imposes no employee-side income or payroll taxes. Employers pay State Unemployment Insurance (SUI) tax, but employees see no state deductions from their paychecks. Federal FICA taxes (6.2% Social Security + 1.45% Medicare) still apply to all overtime wages.

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

Worked Examples Comparing Federal and Tennessee Treatment

Example 1: Warehouse/logistics worker (single filer, $50,000 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

Tennessee return:
Tennessee has no state income tax on wages. This warehouse worker's $8,000 in overtime premium pay owes $0 in Tennessee state tax. The federal OBBBA overtime deduction (IRC §225) provides the only tax relief, reducing federal income tax by an estimated $960 at the 12% bracket.

Example 2: Manufacturing worker (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

Tennessee return:
Tennessee has no state income tax on wages, so no state tax applies to overtime. The federal OBBBA deduction caps at $12,500 for single filers, saving an estimated $2,750 in federal taxes at the 22% bracket. Tennessee workers benefit from having zero state income tax on all earned income, including overtime.

Tennessee – Never Taxed Wages, Constitutional Prohibition Since 2014

Tennessee has never imposed a state income tax on wages, salaries, tips, or overtime pay. The Hall Tax – often mistakenly cited as Tennessee's "income tax" – applied only to interest and dividend income and was fully repealed on January 1, 2021. More importantly, Tennessee voters approved Amendment 3 in 2014, which added a constitutional prohibition against any state or local tax on payroll or earned income. This means Tennessee cannot tax overtime or any other form of wage income without first amending its constitution through another voter referendum.

Manufacturing and Logistics Hub

Tennessee is one of the South's leading manufacturing and logistics states, with major operations in:

Auto manufacturing: Multiple auto assembly plants and suppliers operate across the state, employing tens of thousands of production workers who regularly earn overtime during peak production periods.
Distribution and logistics: Tennessee's central location makes it a major distribution hub. Warehouse workers, truck loaders, and logistics staff frequently earn overtime, especially during holiday shipping seasons.
Healthcare: Tennessee's healthcare industry, anchored by major hospital systems, employs nurses and support staff who earn significant overtime, particularly in rural facilities.

Non-exempt workers in all these industries can claim the federal OBBBA deduction on qualifying overtime premium pay.

No State Payroll Tax on Employees

Tennessee imposes no employee-side payroll taxes of any kind. The State Unemployment Insurance tax is paid solely by employers. Combined with the absence of a state income tax, this means Tennessee overtime workers face only federal tax obligations: income tax (reduced by the OBBBA deduction) and FICA. This tax-friendly environment for workers is reinforced by the 2014 constitutional amendment.

Related Tools

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

No. Tennessee has no state income tax on wages, salaries, or overtime pay. Tennessee never taxed wage income – the now-repealed Hall Tax applied only to interest and dividend income, not wages. Overtime pay owes $0 in Tennessee state tax. Workers only owe federal income tax and FICA on overtime earnings.

Do Tennessee workers benefit from the federal overtime deduction?

Yes. The federal OBBBA overtime deduction (IRC §225) allows qualifying workers to deduct up to $12,500 ($25,000 for married filing jointly) in overtime premium pay from federal adjusted gross income. Tennessee workers benefit from this on their federal return, which is their only income tax obligation.

What was the Hall Tax and did it ever apply to overtime?

The Hall Tax was a Tennessee tax on interest and dividend income only. It never applied to wages, salaries, or overtime pay. The Hall Tax was gradually phased down starting in 2016 and was fully repealed effective January 1, 2021. Since then, Tennessee has had no state-level income tax of any kind – not on wages, not on investment income, and not on overtime.

How does overtime work for Tennessee's manufacturing and logistics workers?

Tennessee is a major manufacturing and logistics hub, home to auto assembly plants, distribution centers, and freight operations. Under the federal FLSA, non-exempt workers in these industries must receive 1.5x their regular rate for hours over 40 in a workweek. Tennessee has no separate state overtime law – FLSA rules apply. The overtime premium (the extra 0.5x above straight time) qualifies for the federal OBBBA deduction.

Does Tennessee have any payroll taxes on overtime earnings?

Tennessee does not impose any employee-side state payroll or income taxes. Tennessee employers pay State Unemployment Insurance (SUI) tax on wages up to the taxable wage base, but this is an employer-only obligation. Employees see no Tennessee state deductions from their paychecks. Federal FICA taxes (Social Security and Medicare) still apply to all overtime wages.

Could Tennessee ever impose a state income tax on wages or overtime?

It would be very difficult. In 2014, Tennessee voters approved Amendment 3 to the state constitution, which prohibits the legislature from levying, authorizing, or otherwise permitting any state or local tax on payroll or earned income. This constitutional amendment makes it virtually impossible for Tennessee to impose a wage or overtime income tax without first amending the constitution through another voter referendum.