Does Vermont Tax Overtime in 2026?
Unknown \ - Vermont has not published guidance on whether it recognizes the federal OBBBA overtime deduction for 2026. Vermont conforms to federal tax law in many respects, including using the federal standard deduction, which suggests the deduction may flow through. However, the Vermont Department of Taxes has not explicitly confirmed this. The federal deduction still applies on your federal return regardless.
How Vermont's Overtime Tax Treatment Works
Vermont’s income tax system conforms to federal tax law in several important ways: it uses the federal standard deduction, starts from federal adjusted gross income, and generally incorporates federal definitions of income. This suggests OBBBA above-the-line deductions would likely flow through.
However, Vermont has a history of selectively conforming to federal changes. Without explicit guidance from the Vermont Department of Taxes, workers cannot assume conformity.
Vermont’s high tax rates (top bracket 8.75%) make conformity particularly impactful. A worker in the 6.6% bracket who claims the full $12,500 federal overtime deduction would save an additional $825 in VT state tax if the state conforms.
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 |
| Vermont treatment | Does not conform |
| What qualifies? | Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees |
Worked Examples Comparing Federal and Vermont Treatment
Example 1: Ski resort maintenance worker (single filer, $48,000 income, $7,500 overtime premium)
Qualifying overtime premium: $7,500
Overtime deduction claimed: $7,500 (capped at $12,500)
Estimated federal tax savings: $900.00
Vermont return:
As of September 2026, Vermont has not confirmed whether the OBBBA overtime deduction applies at the state level. If VT conforms: the $7,500 deduction would reduce VT taxable income, saving approximately $495 (at the 6.6% marginal rate). If VT does not conform: the full $7,500 remains subject to Vermont income tax. The federal deduction still saves $900 regardless.
Example 2: Healthcare worker (single filer, $78,000 income, $12,500 overtime premium - federal cap)
Qualifying overtime premium: $12,500
Overtime deduction claimed: $12,500 (capped at $12,500)
Estimated federal tax savings: $2,750.00
Vermont return:
If VT conforms: the $12,500 deduction reduces VT taxable income, saving approximately $825 (at the 6.6% rate). If VT does not conform: the full $12,500 remains taxable at VT’s graduated rates. Vermont’s relatively high rates (up to 8.75%) make conformity especially impactful.
Vermont’s Tax Landscape and Overtime Workers
Vermont has one of the highest income tax rates in New England, with a top bracket of 8.75%. Most overtime workers fall in the 6.6% bracket ($45,400 - $110,450), still above the national median for state income tax rates.
Healthcare overtime: Vermont’s aging population and rural geography create persistent healthcare staffing shortages, making healthcare workers one of the largest groups of potential beneficiaries.
Seasonal tourism: Vermont’s ski industry generates heavy overtime during peak winter season. Resort workers often work 50-60 hour weeks December through March.
Social Security interaction: Vermont taxes Social Security benefits for higher earners. If the OBBBA overtime deduction reduces federal AGI, it could also reduce VT’s taxation of Social Security - a secondary benefit for older workers earning overtime.
Related Tools
- No Tax on Overtime Calculator - calculate your federal overtime deduction
- Vermont Tax Guide - full state tax overview
- Vermont Paycheck Calculator
- Does Vermont Tax Tips?
- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map