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Tax Year 2026Updated July 13, 2026

Does Virginia Tax Overtime in 2026?

Likely no, but explicit guidance is pending. Virginia's IRC conformity date (December 31, 2025) captures the OBBBA, and Tax Bulletin 26-1 confirms conformity to provisions affecting federal AGI. The overtime deduction (IRC §225) is an above-the-line adjustment reducing federal AGI, which suggests it should flow through to Virginia. However, the Department of Taxation has not published guidance specifically addressing the overtime deduction. If confirmed, workers would save up to 5.75% on qualifying overtime premium pay (up to $12,500 single / $25,000 MFJ). Virginia does not conform to OBBBA's Pease limitation changes.

How Virginia's Overtime Tax Treatment Works

Virginia's treatment of the OBBBA overtime deduction follows the same structural question as the tips deduction: does a provision that reduces federal AGI automatically flow through when Virginia's conformity date captures the law?

The conformity date: Virginia's IRC conformity date is December 31, 2025, fixed by the 2026 Appropriation Act. The OBBBA (enacted July 2025) is within this window. Tax Bulletin 26-1 confirms Virginia conforms to OBBBA provisions affecting federal AGI.

The overtime deduction mechanics: The overtime deduction (IRC §225) is an above-the-line adjustment reported on Schedule 1-A. It allows workers to deduct up to $12,500 ($25,000 MFJ) in qualifying overtime premium pay from federal AGI. Because Virginia starts its tax calculation from federal AGI, this deduction should reduce Virginia taxable income if it reduces FAGI.

Selective conformity caveat: Tax Bulletin 26-1 explicitly decouples Virginia from OBBBA's Pease limitation changes while conforming to other provisions. This selective approach means Virginia is evaluating OBBBA provisions individually. The fact that the overtime deduction is not specifically mentioned could mean it is treated as automatically adopted (the expected outcome) or that guidance is still forthcoming.

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

Worked Examples Comparing Federal and Virginia Treatment

Example 1: 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

Virginia return:
Virginia's conformity date (December 31, 2025) captures the OBBBA, and Tax Bulletin 26-1 confirms conformity to provisions affecting federal AGI. If the overtime deduction is confirmed as applicable, the $8,000 deduction would save approximately $460 in Virginia tax at the 5.75% top marginal rate. Virginia has no local income tax. Official DOR guidance specific to the overtime deduction is pending.

Example 2: 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

Virginia return:
If Virginia confirms the OBBBA overtime deduction applies, the full $12,500 deduction would save approximately $718.75 in Virginia tax at the 5.75% top marginal rate. Virginia has no local income tax, so this is the total state-level savings. Official DOR guidance is still pending as of August 2026.

Virginia's Position in the DMV Region

For overtime workers in the D.C.-Maryland-Virginia (DMV) region, Virginia offers the most favorable treatment if conformity is confirmed:

A nurse earning $12,500 in overtime would face very different state tax outcomes: approximately $718.75 in Virginia (if deduction applies, $0 effectively), up to $993.75 combined in Maryland (no deduction), or up to $1,062.50 in D.C. (if deduction applies, $0 effectively). Maryland overtime workers face the worst outcome in the region due to both non-conformity and county tax layering.

Virginia's Standard Deduction and Narrow Brackets

Virginia offers a standard deduction of $8,750 for single filers ($17,500 MFJ) and a personal exemption of $930 per person. The four-bracket system tops out at just $17,000 of taxable income (5.75% rate), meaning these thresholds are quickly exhausted. For virtually all overtime-earning workers, overtime income falls entirely in the 5.75% top bracket.

The standard deduction amounts are scheduled to increase: $9,200 for TY2027–2028, $9,300 for TY2028–2030, then sunset back to $3,000 after 2029 under the 2026 Appropriation Act.

No Local Income Tax Simplifies the Analysis

Virginia does not impose local income taxes. This is a significant advantage compared to Maryland and Indiana, where local taxes add complexity and cost. For Virginia overtime workers, the state income tax at up to 5.75% is the only income tax burden, making the conformity question a straightforward state-only analysis.

Conformity Recheck Date – September 1, 2026

Our records indicate that Virginia's OBBBA conformity status for tips, overtime, and senior bonus deductions should be rechecked on or after September 1, 2026. The Department of Taxation may issue additional Tax Bulletins or updated Form 760 instructions. This page will be updated when official guidance is published.

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Frequently Asked Questions

Does Virginia conform to the federal OBBBA overtime deduction?
The answer is pending explicit guidance. Virginia's IRC conformity date (December 31, 2025) captures the OBBBA. Tax Bulletin 26-1 confirms conformity to OBBBA provisions affecting federal adjusted gross income. The overtime deduction (IRC §225) reduces federal AGI, suggesting it should flow through to Virginia. However, the Department of Taxation has not published guidance specifically addressing the overtime deduction.
What does Tax Bulletin 26-1 say about the overtime deduction?
Tax Bulletin 26-1 does not specifically address the overtime deduction. It confirms Virginia's conformity date captures the OBBBA and that Virginia conforms to OBBBA provisions affecting federal AGI and itemized deductions. It explicitly states Virginia does NOT conform to OBBBA's Pease limitation changes. The overtime deduction is not an itemized deduction (it is an above-the-line adjustment), so the Pease non-conformity does not affect it.
What Virginia income tax rate would apply to my overtime pay?
Virginia uses a graduated rate schedule: 2% on the first $3,000, 3% on $3,000 - $5,000, 5% on $5,000 - $17,000, and 5.75% on everything above $17,000 (same for all filing statuses). Because the lower brackets are narrow, virtually all overtime income falls in the 5.75% top bracket. Virginia has no local income tax.
How does Virginia compare to Maryland and D.C. for overtime workers?
Virginia has a lower top rate (5.75%) than Maryland (up to 6.5% state plus 2.25% - 3.30% county) and D.C. (up to 10.75%). Virginia also has no local income tax, while Maryland has mandatory county taxes. If Virginia confirms conformity to the overtime deduction, Virginia workers would have the most favorable treatment in the DMV (D.C.-Maryland-Virginia) region.
When will Virginia issue guidance on the overtime deduction?
Virginia's Department of Taxation has not announced a timeline. Our records suggest a recheck date of September 1, 2026. Workers should monitor tax.virginia.gov for additional Tax Bulletins or guidance.
Does Virginia's non-conformity to Pease limitations affect the overtime deduction?
No. The Pease limitation applies to certain itemized deductions for high-income taxpayers. The overtime deduction is an above-the-line adjustment (Schedule 1-A), not an itemized deduction, so the Pease non-conformity is irrelevant to the overtime deduction question.