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Tax Year 2026Updated July 13, 2026

Does Texas Tax Overtime in 2026?

No - Texas does not tax overtime because it has no state income tax. The Texas Constitution prohibits a personal income tax without voter approval, and no such vote has ever occurred. Overtime pay – like all wages – owes $0 in Texas state tax. Texas 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 Texas's Overtime Tax Treatment Works

Texas is one of nine states with no state income tax. Because there is no state income tax, there is nothing for overtime pay to be exempt from at the state level. The question of "state conformity" to the federal OBBBA overtime deduction is moot – Texas workers already pay $0 state tax on all wages, including overtime.

Federal benefit still applies: Texas workers can still claim the federal OBBBA overtime deduction (IRC §225) on their federal return. This deduction allows qualifying workers to exclude up to $12,500 ($25,000 for married filing jointly) in overtime premium pay from federal adjusted gross income, reducing their federal income tax.

No state payroll tax on employees: Unlike some states, Texas does not impose any employee-side payroll tax. Texas employers pay unemployment insurance (UI) tax, but employees see no state tax 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

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

Worked Examples Comparing Federal and Texas Treatment

Example 1: Oil field 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

Texas return:
Texas has no state income tax. Overtime pay is not taxed at the state level, regardless of the amount earned. This worker's $8,000 in overtime premium pay owes $0 in Texas state tax. The only tax savings come from the federal OBBBA overtime deduction (IRC §225), which reduces federal income tax by an estimated $960.

Example 2: Construction 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

Texas return:
Texas has no state income tax, so no state tax applies to any portion of this worker's overtime. The federal OBBBA overtime deduction caps at $12,500 for single filers, saving an estimated $2,750 in federal taxes at the 22% bracket. Texas workers benefit from not having any state income tax layer on top of their overtime earnings.

Texas – No Income Tax by Constitutional Prohibition

Texas's lack of a state income tax is not merely a legislative choice – it is constitutionally protected. Article VIII, Section 24-a of the Texas Constitution prohibits the legislature from imposing a personal income tax unless approved by a majority of voters in a statewide referendum. In 2019, Texas voters overwhelmingly approved Proposition 4, further strengthening this prohibition. Any future attempt to tax wages – including overtime – would require amending the state constitution.

FLSA Overtime in Texas Industries

Texas relies entirely on the federal Fair Labor Standards Act (FLSA) for overtime protections – the state has no separate overtime law. This matters for Texas's dominant industries:

Non-exempt workers in these industries can claim the federal OBBBA deduction on the overtime premium portion (the extra 0.5x above straight time) of their pay.

No State Payroll Tax Burden

Texas imposes no employee-side payroll taxes. The Texas Unemployment Insurance tax is paid solely by employers. This means Texas overtime workers face only federal tax obligations: income tax (reduced by the OBBBA deduction) and FICA. Compared to workers in high-tax states, Texas employees keep more of every overtime dollar earned.

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Frequently Asked Questions

Does Texas tax overtime pay in 2026?
No. Texas has no state income tax at all, which means overtime pay – like all wage income – is not taxed at the state level. The Texas Constitution (Article VIII, Section 24-a) prohibits a personal income tax unless approved by voters in a statewide referendum, and no such referendum has ever been approved. Texas workers only owe federal income tax and FICA on their overtime earnings.
Do Texas workers still 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 their federal adjusted gross income. This reduces federal income tax owed. Texas workers benefit from this deduction on their federal return, even though they have no state income tax to worry about.
Are oil and gas workers in Texas eligible for the federal overtime deduction?
FLSA classification determines eligibility. The federal OBBBA overtime deduction applies to qualifying overtime premium pay under the Fair Labor Standards Act (FLSA). Many oil and gas field workers are non-exempt under the FLSA and earn overtime pay at 1.5x their regular rate for hours over 40 per week. However, some highly compensated employees or those in certain exempt roles may not qualify. The overtime premium – the extra 0.5x portion above straight time – is what qualifies for the deduction.
Does Texas have any payroll taxes that apply to overtime?
Texas does not impose a state payroll income tax on employees. Texas employers pay the Texas Unemployment Insurance (UI) tax on wages up to the taxable wage base, but this is an employer-only obligation. Employees in Texas see no state-level deductions from their paychecks for income or payroll taxes. Federal FICA taxes (Social Security and Medicare) still apply to all overtime wages.
How does FLSA overtime apply to Texas construction and energy workers?
Texas has no state overtime law – overtime protections come entirely from the federal FLSA. Under the FLSA, non-exempt employees must receive 1.5x their regular rate for hours worked over 40 in a workweek. Construction workers are generally non-exempt and entitled to overtime. Energy sector workers may be exempt if they meet the duties test for certain exemptions (e.g., highly compensated employees earning over $107,432 annually). Non-exempt workers in these industries can claim the federal OBBBA deduction on qualifying overtime premium pay.
Could Texas ever impose a state income tax on overtime or other wages?
It would be extremely difficult. The Texas Constitution requires that any personal income tax be approved by voters in a statewide referendum and that the revenue be dedicated to education. In 2019, Texas voters approved Proposition 4, which further strengthened the constitutional prohibition. Imposing a state income tax on overtime – or any wages – would require a constitutional amendment approved by both the legislature and voters. This is considered politically unlikely in the foreseeable future.