Does Washington Tax Overtime in 2026?
No - Washington does not tax overtime because it has no state income tax on wages. Washington has never had a state income tax on earned income. Overtime pay – like all wages – owes $0 in Washington state income tax. Washington 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. Note: the WA Cares Fund premium (0.58% of all wages) does apply to overtime wages, but this is a social insurance premium, not an income tax.
How Washington's Overtime Tax Treatment Works
Washington is one of nine states with no state income tax on wages. Despite recent court rulings upholding the capital gains excise tax, Washington has no tax on earned income – wages, salaries, overtime, and tips are all untaxed at the state level. The question of conformity to the federal OBBBA overtime deduction is moot for wage income.
Federal benefit still applies: Washington 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.
WA Cares Fund applies to all wages: Washington's long-term care program (WA Cares Fund) charges a 0.58% premium on all wages with no cap, including overtime wages. This is a social insurance premium, not an income tax, and is not affected by the OBBBA deduction. Federal FICA taxes (6.2% Social Security + 1.45% Medicare) also apply to all overtime wages.
Capital gains tax does not apply: Washington's 7% capital gains excise tax applies only to capital gains from asset sales exceeding $270,000 – it does not apply to wages or overtime pay.
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 |
| Washington treatment | Does not conform |
| What qualifies? | Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees |
Worked Examples Comparing Federal and Washington Treatment
Example 1: Warehouse worker (single filer, $50,000 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
Washington return:
Washington has no state income tax on wages. This warehouse worker's $8,000 in overtime premium pay owes $0 in Washington state income tax. The federal OBBBA overtime deduction (IRC §225) provides the only income tax relief, reducing federal income tax by an estimated $960 at the 12% bracket. Note: The WA Cares Fund premium (0.58% of all wages) does apply to overtime wages.
Example 2: Tech support worker (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
Washington return:
Washington has no state income tax on wages, so no state income 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. The WA Cares Fund premium applies to all wages including overtime, but this is a social insurance premium, not an income tax.
Washington – No Income Tax on Wages
Washington has never imposed a state income tax on wages. Multiple attempts to enact one have failed at the ballot box. In 2022, the Washington Supreme Court upheld a 7% capital gains excise tax on gains from the sale of stocks and bonds exceeding $270,000, but the court classified this as an excise tax, not an income tax. Critically, this tax applies only to capital gains from asset sales – it does not apply to wages, overtime, salaries, tips, or any other earned income. Overtime workers in Washington are completely unaffected by the capital gains tax.
WA Cares Fund – A Payroll Deduction That Applies to Overtime
The WA Cares Fund is Washington's mandatory long-term care insurance program. Key details for overtime workers:
- The premium is 0.58% of all gross wages, with no wage cap.
- Overtime wages are included in the premium calculation – there is no exemption for overtime pay.
- For a worker earning $8,000 in overtime, the WA Cares premium on that overtime is approximately $46.40.
- Workers who obtained an approved exemption (by purchasing qualifying private long-term care insurance before the opt-out deadline) are not subject to the premium.
- The WA Cares premium is not an income tax and is not reduced by the OBBBA deduction.
Warehouse, Logistics, and Tech Overtime
Washington's economy features major warehouse, logistics, and technology employers, particularly in the Puget Sound region. Non-exempt workers in these industries regularly earn overtime. Washington state law mirrors the federal FLSA overtime requirement (1.5x for hours over 40 per workweek) and has expanded overtime protections to additional worker categories, including agricultural workers. Washington also sets a higher salary threshold for exempt employees than the federal standard, meaning more workers qualify for overtime protections – and therefore for the federal OBBBA deduction.
Related Tools
- No Tax on Overtime Calculator - calculate your federal overtime deduction
- Washington Tax Guide - full state tax overview
- Washington Paycheck Calculator
- Does Washington Tax Tips?
- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map