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No Tax on Overtime in Kentucky

3.5%

The deduction is federal. Kentucky still charges its own tax on those same hours.

On $5,775 of overtime premium

You save $877, but Kentucky takes back $202

Worked on Kentucky's own average wage ($62,567, about $30/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 Kentucky charges anyway. FICA is never touched: $442 of Social Security and Medicare on those hours.

Kentucky keeps 23.0% of what the federal deduction gives back.

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

2025–2028

Federal tax saved: $1,183. FICA still owed on that overtime: $1,234.

Federal tax saved
per year, at filing
$1,234FICA still owed on it
7.65% of your overtime — the deduction does not touch it

Of your $16,128 overtime pay a year

  • $12,790You keep79.3%
  • $1,539Federal9.5%
  • $1,234FICA7.7%
  • $564State3.5%
Enter your overtime
Filing status
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
$59,845

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 $62,567 of straight-time pay in Kentucky, tax year 2026. The last row is the deduction cap.

Overtime premiumFederal savingKentucky taxFICANet benefit
$2,000$240−$70−$153$170
$4,000$487−$140−$306$347
$6,000$927−$210−$459$717
$8,000$1,367−$280−$612$1,087
$12,500$2,357−$438−$956$1,919

Applies Kentucky's income tax, which for 2026 is not reduced by the deduction. Informational estimate, not tax advice.

Overtime and OBBBA in Kentucky

Does Kentucky tax my overtime in 2026?
Yes. Kentucky doesn't let the OBBBA deduction reduce its own tax for 2026, so it still applies its income tax (3.5%) to those hours: you get $877 back federally while Kentucky takes $202 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 $442 in Social Security and Medicare on those hours regardless.
What do I actually save in Kentucky?
On $62,567 of straight-time pay plus $5,775 of overtime premium: $877 off your federal bill, less $202 that Kentucky takes. Real net effect of the deduction: $675.
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

Tennessee no taxIndiana 2.95%Ohio 2.75%Missouri 2%–4.7%West Virginia 2.11%–4.58%All states

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