Does Michigan tax overtime pay?
Yes. Michigan conforms to the federal OBBBA overtime deduction for 2026, so qualified overtime premium is excluded from Michigan taxable income too. Michigan taxes wages with a flat 4.25% rate, but lawmakers actively chose to connect to the new federal overtime deduction rather than picking it up by default. Michigan legislation in 2025 (Senate Bill 125, deducting overtime compensation from taxable income) adopts the federal overtime deduction, so eligible workers can exclude qualified overtime pay from Michigan taxable income for 2025 through 2028.
Federal rule vs Michigan rule
| Layer | 2026 treatment of overtime premium |
|---|---|
| Federal | Up to $12,500 single / $25,000 MFJ of FLSA half-time premium deducted from taxable income, phasing out at $150k/$300k MAGI. 2025–2028. |
| Michigan | Flat 4.25% on wages (2026) |
| Result for you | Michigan taxes wages with a flat 4.25% rate, but lawmakers actively chose to connect to the new federal overtime deduction rather than picking it up by default. Michigan legislation in 2025 (Senate Bill 125, deducting overtime compensation from taxable income) adopts the federal overtime deduction, so eligible workers can exclude qualified overtime pay from Michigan taxable income for 2025 through 2028. |
How state overtime taxation works
Most states start from federal AGI and add back or subtract state-specific adjustments. The federal OBBBA overtime deduction lives in federal taxable income only, so a state that starts from federal AGI still taxes the overtime unless it conforms to the deduction or passes its own exemption. Three groups result: the nine no-income-tax states never taxed overtime at all; a set of states that auto-coupled or legislated conformity exclude it for 2026; the rest, including large non-conforming states like California and New York, tax overtime as ordinary wages.
Every state, one table
All 50 states and DC. Tap any state.
| State | Taxes overtime? | Top 2026 rate |
|---|---|---|
| Alabama | Yes | 5.00% |
| Alaska | No (no income tax) | n/a |
| Arizona | Yes | 2.5% |
| Arkansas | Yes | 3.9% |
| California | Yes | 13.3% |
| Colorado | Yes | 4.40% |
| Connecticut | Yes | 6.99% |
| Delaware | Yes | 6.60% |
| District of Columbia | Yes | 10.75% |
| Florida | No (no income tax) | n/a |
| Georgia | Yes | 5.19% |
| Hawaii | Yes | 11% |
| Idaho | No (conforms) | 5.3% |
| Illinois | Yes | 4.95% |
| Indiana | Yes | 2.95% |
| Iowa | No (conforms) | 3.8% |
| Kansas | Yes | 5.58% |
| Kentucky | Yes | 3.50% |
| Louisiana | Yes | 3.00% |
| Maine | Yes | 7.15% |
| Maryland | Yes | 6.25% |
| Massachusetts | Yes | 9.0% |
| Minnesota | Yes | 9.85% |
| Mississippi | Yes | 4.00% |
| Missouri | Yes | 4.7% |
| Montana | No (conforms) | 5.65% |
| Nebraska | Yes | 4.55% |
| Nevada | No (no income tax) | n/a |
| New Hampshire | No (no income tax) | n/a |
| New Jersey | Yes | 10.75% |
| New Mexico | Yes | 5.9% |
| New York | Yes | 10.9% |
| North Carolina | Yes | 3.99% |
| North Dakota | No (conforms) | 2.5% |
| Ohio | Yes | 2.75% |
| Oklahoma | Yes | 4.50% |
| Oregon | No (conforms) | 9.9% |
| Pennsylvania | Yes | 3.07% |
| Rhode Island | Yes | 5.99% |
| South Carolina | No (conforms) | 6.00% |
| South Dakota | No (no income tax) | n/a |
| Tennessee | No (no income tax) | n/a |
| Texas | No (no income tax) | n/a |
| Utah | Yes | 4.45% |
| Vermont | Yes | 8.75% |
| Virginia | Yes | 5.75% |
| Washington | No (no income tax) | n/a |
| West Virginia | Yes | 4.82% |
| Wisconsin | Yes | 7.65% |
| Wyoming | No (no income tax) | n/a |
Common questions
Does Michigan tax overtime pay in 2026?
Yes. Michigan conforms to the federal OBBBA overtime deduction for 2026, so qualified overtime premium is excluded from Michigan taxable income too. Michigan taxes wages with a flat 4.25% rate, but lawmakers actively chose to connect to the new federal overtime deduction rather than picking it up by default. Michigan legislation in 2025 (Senate Bill 125, deducting overtime compensation from taxable income) adopts the federal overtime deduction, so eligible workers can exclude qualified overtime pay from Michigan taxable income for 2025 through 2028.
Why doesn't the federal overtime deduction always help on my Michigan return?
The federal deduction applies to federal taxable income only. States that start from federal AGI and do not conform still tax the overtime premium. Michigan taxes wages with a flat 4.25% rate, but lawmakers actively chose to connect to the new federal overtime deduction rather than picking it up by default. Michigan legislation in 2025 (Senate Bill 125, deducting overtime compensation from taxable income) adopts the federal overtime deduction, so eligible workers can exclude qualified overtime pay from Michigan taxable income for 2025 through 2028.
What federal overtime deduction applies in Michigan?
Up to $12,500 single / $25,000 MFJ of the FLSA half-time premium, 2025–2028, phasing out at $150k/$300k MAGI. See the overtime calculator.
Is the state rate the only thing that matters?
No. State tax is computed on wages after federal AGI, so the state layer sits on top of your federal return. Local income taxes (New York City, Yonkers, Maryland counties) and state-specific addbacks can change the effective state tax on your overtime.
Related calculators
Comparing states? See which states tax overtime pay across all 50 states and DC.
Sourced to Michigan Legislature: Senate Bill 125 of 2025 (overtime compensation deduction), ITEP: Tips and Overtime Income Tax Deduction State Budgets (Dec 8, 2025), Tax Foundation: State Individual Income Tax Rates and Brackets, 2026. Verified October 1, 2026, pending CPA sign-off.