No Tax on Overtime in Idaho: Who Qualifies, Limits, and How to Claim

There is no tax on overtime in Idaho for most hourly workers from 2025 through 2028, thanks to a new federal deduction that Idaho has adopted into its own tax code. You can deduct the premium portion of your overtime pay (the extra “half” in time-and-a-half) from both your federal and Idaho taxable income, up to $12,500 on a single return or $25,000 on a joint return. Because Idaho’s income tax starts with your federal adjusted gross income and the state conformed to the federal change, the break shows up on both returns without any separate state application.¹²

Who Qualifies

The deduction is for workers covered by, and not exempt from, the overtime rules of the Fair Labor Standards Act. In plain terms, that means hourly and other non-exempt employees whose employers are required by federal law to pay time-and-a-half for hours worked beyond 40 in a workweek.³ Salaried workers classified as FLSA-exempt do not qualify, even if their employer pays them extra for long weeks.

You also need to meet a couple of personal requirements. You must have a Social Security number valid for employment, and you must include it on the return where you claim the deduction. If you are married, you have to file jointly with your spouse; married filing separately disqualifies you.³

Only the Premium Half of Your Overtime Pay Counts

The deduction does not wipe out tax on your entire paycheck in weeks you work overtime. It only covers the premium portion, meaning the extra half above your regular rate.¹

An example makes this concrete. If your regular rate is $25 an hour and you work 50 hours in a week, your employer pays $37.50 for each of the 10 overtime hours. The deductible premium is $12.50 per hour, so $125 of that week’s pay qualifies. The underlying $25 rate for those same hours is still taxed as normal wages.

Overtime required only by a state law or by a union contract, but not by the FLSA, does not qualify. Idaho follows the standard FLSA threshold of time-and-a-half past 40 hours in a workweek, so most Idaho workers earning overtime are covered.³⁴

How Much You Can Deduct

The deduction is capped at $12,500 of qualified overtime per return, or $25,000 for joint filers.¹

Higher earners lose part or all of the benefit. The deduction begins phasing out when your modified adjusted gross income passes $150,000, or $300,000 on a joint return. For every $1,000 of income above that threshold, the deduction drops by $100.⁵ A single filer at the full $12,500 cap loses the deduction entirely at $275,000 of modified AGI, and a joint filer at $25,000 loses it at $550,000.

How the Idaho Side Works

Idaho House Bill 40, signed by Governor Brad Little on March 6, 2025 and made retroactive to January 1, 2025, conformed Idaho’s tax code to the federal overtime deduction.² Idaho calculates taxable income starting from your federal AGI, so when the federal deduction reduces that figure, your Idaho tax drops along with it.

Idaho’s income tax is a flat 5.3% on income above a zero-bracket amount of $4,812 for single filers and $9,623 for joint filers.⁶ So on every dollar of qualifying overtime you deduct, you save your federal marginal rate plus 5.3% in Idaho tax.

What the Deduction Does Not Cover

This is an income tax deduction only. Social Security and Medicare taxes still come out of every overtime dollar: 6.2% for Social Security and 1.45% for Medicare, with no change from this law. The additional 0.9% Medicare surtax at higher earnings is also unaffected.

Some workers will not benefit at all:

Salaried employees classified as FLSA-exempt, including most managers, administrators, and professionals above certain pay thresholds, since their extra pay is not FLSA-required overtime.
Independent contractors paid on a 1099, who do not earn FLSA overtime on contract work.
Workers whose overtime entitlement comes only from a state rule or a collective bargaining agreement rather than the FLSA.

How to Claim It

For the 2025 tax year, the IRS has said employers were not yet required to break out overtime pay separately, so you may need to calculate your qualified overtime from your own pay records. Starting with the 2026 tax year, employers must report qualified overtime compensation separately on your W-2 or 1099.³

On your federal return, you can take the overtime deduction whether you itemize or claim the standard deduction. It sits above the line as a separate deduction from AGI, not an itemized deduction.¹

On your Idaho return, the Tax Commission did not add new lines to the 2025 forms. Full-year residents filing Form 40 claim the deduction by following the updated instructions for line 18. Part-year residents and nonresidents filing Form 43 use line 40 and complete Idaho Worksheet 1-A.² If you already filed a 2025 Idaho return before the conformity bill took effect, you can file an amended return to pick up the deduction.

When the Break Expires

The federal deduction applies to tax years 2025 through 2028 and will expire after 2028 unless Congress extends it.¹ Idaho’s benefit rides on its conformity to the federal code, so the state deduction continues as long as both the federal provision and Idaho’s conformity remain in place. A future Idaho legislature could decouple from the federal rule and end the state portion sooner.

1
Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
2
Idaho State Tax Commission. File Now to Get Your Conformity Deductions
3
Internal Revenue Service. Questions and Answers About the New Deduction for Qualified Overtime Compensation
4
Idaho Department of Labor. Frequently Asked Questions on Labor Laws
5
Office of the Law Revision Counsel. 26 USC 225 – Qualified Overtime Compensation
6
Idaho State Tax Commission. Individual Income Tax Rate Schedule