No Tax on Overtime in Arizona (2025-2028)

On $6,729 of overtime premium

You save $1,480, but Arizona takes back $168

Worked on Arizona's own average wage ($72,896, about $35/hour per BLS) with 8 overtime hours a week for 48 weeks. The OBBBA deduction cuts your federal tax, but not your state base, so Arizona charges anyway. FICA is never touched: $515 of Social Security and Medicare on those hours.

Arizona keeps 11.0% of what the federal deduction gives back.

No Tax on Overtime Calculator

What the new federal overtime deduction actually saves you — and what it does not.

2025–2028

Enter your overtime

Regular hourly rate

$

Overtime hours per week

Weeks of overtime per year

Filing status

State (for state tax)

Overtime pay for the year (gross): $16,128
Qualifying premium (the half of time-and-a-half): $5,376
Deduction applied (Schedule 1-A): $5,376
Federal tax without the deduction: $7,531
Federal tax with the deduction: $6,348
Take-home for the year: $60,874

Estimates only. Not tax or legal advice. Consult a professional. Models FLSA time-and-a-half: the deductible premium is half your regular rate per overtime hour, capped and phased out per Schedule 1-A.

How the split moves with your overtime

Single filer on $72,896 of straight-time pay in Arizona, tax year 2026. The last row is the deduction cap.

Overtime premium	Federal saving	Arizona tax	FICA	Net benefit
$2,000	$440	−$50	−$153	$390
$4,000	$880	−$100	−$306	$780
$6,000	$1,320	−$150	−$459	$1,170
$8,000	$1,760	−$200	−$612	$1,560
$12,500	$2,750	−$313	−$956	$2,438

Models the ordinary state income tax on those hours. Informational estimate, not tax advice.

Overtime and OBBBA in Arizona

Does Arizona tax my overtime in 2026?

Yes. The OBBBA deduction is federal: it cuts your federal tax, not your state base. Arizona still applies its 2.5% income tax to those hours, so you get $1,480 back federally while Arizona takes $168 of the very same hours.

So is overtime actually tax-free?

Not quite, and the name oversells it. The deduction covers only the PREMIUM half of time-and-a-half, caps at $12,500 for a single filer, phases out above $150,000 of income, and never touches FICA: in this example you pay $515 in Social Security and Medicare on those hours regardless.

What do I actually save in Arizona?

On $72,896 of straight-time pay plus $6,729 of overtime premium: $1,480 off your federal bill, less $168 that Arizona takes. Real net effect of the deduction: $1,312.

Where does this show up on my W-2?

Your employer reports qualified overtime in W-2 box 12 under code TT. That figure is what carries to Schedule 1-A; if the box is empty, ask your employer to correct it before you file.

Compare with nearby states

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