No Tax on Overtime in Nevada: Federal Deduction Through 2028

There is no tax on overtime in Nevada at the state level, because Nevada’s Constitution forbids any tax on wages or personal income. On top of that, a federal deduction in effect for tax years 2025 through 2028 lets you subtract up to $12,500 of qualified overtime pay ($25,000 on a joint return) from your federal taxable income. Between the two, Nevada workers keep more of their overtime than employees almost anywhere else. But “no tax on overtime” is shorthand, not the whole picture: payroll taxes still apply, only the premium half of your overtime rate qualifies for the federal deduction, and Nevada’s daily overtime rule creates hours that don’t count under the federal rules at all.

Nevada Takes Nothing From Your Overtime

Article 10, Section 9 of the Nevada Constitution bars any tax on “the wages or personal income of natural persons.”¹ The ban is absolute and permanent. It doesn’t separate overtime from regular pay, and it doesn’t sunset. Your employer withholds no state income tax from any paycheck, and you never file a state return. Two extra hours or two hundred, the state’s share is zero.

Compare that to California or New York, where state income tax on overtime dollars can run above 10%. In Nevada, only federal taxes touch your overtime earnings.

The Federal Overtime Deduction Through 2028

The bigger recent change is federal. Under 26 U.S.C. § 225, enacted as part of P.L. 119-21, you can deduct qualified overtime compensation from your federal taxable income for tax years 2025 through 2028. The cap is $12,500 per year on a single return and $25,000 on a joint return.² Pair that with Nevada’s zero state tax, and eligible overtime comes as close to fully tax-free as current law allows.

Only the Premium Qualifies, Not the Whole Overtime Hour

This is where expectations and reality part ways. The deduction covers the overtime premium only, not the entire overtime paycheck. If your regular rate is $20 an hour and you work an overtime hour at time-and-a-half for $30, only the extra $10 is qualified overtime compensation. The base $20 for that same hour is still fully taxable.³ In practical terms, the real benefit is roughly half of what “no tax on overtime” sounds like it would be.

It Has to Be FLSA Overtime, Not Nevada Daily Overtime

The overtime must be required by Section 7 of the federal Fair Labor Standards Act. The FLSA only requires overtime past 40 hours in a workweek. Nevada goes further: for workers earning less than $18.00 per hour, state law requires overtime after 8 hours in a single workday too. Those extra hours are paid, but they may not qualify for the federal deduction.

Suppose you work a 10-hour shift on Monday and end the week at 38 hours total. The 2 hours over 8 on Monday are Nevada daily overtime, owed under state law. Because they aren’t required by the FLSA, the IRS position is that overtime paid because of state law or a union contract doesn’t count toward the deduction.³ You still get the extra pay. You just may not get to deduct any of it federally.

You also have to be an FLSA-covered, non-exempt employee. Salaried workers in executive, administrative, or professional positions classified as exempt from overtime under the FLSA can’t claim the deduction, even if they happen to receive overtime through some other arrangement.

The Deduction Phases Out at Higher Incomes

The deduction shrinks once your modified adjusted gross income clears $150,000 on a single return or $300,000 on a joint return, dropping by $100 for every $1,000 above the threshold.² Single filers lose the deduction entirely at $275,000. Joint filers lose it at $550,000. Most hourly Nevada workers won’t come close, but heavy overtime in mining, construction, or skilled trades can move you into the phase-out range.

Payroll Taxes Still Take Their Cut

The deduction is an income tax deduction. It does nothing for Social Security and Medicare, which come out of every overtime dollar at the same rates as regular pay.⁴

Social Security is withheld at 6.2% on wages up to $184,500 for 2026. Once you pass that ceiling, Social Security withholding stops for the rest of the year.⁵ Medicare is withheld at 1.45% with no cap at all.⁶ An additional 0.9% Medicare tax applies once your wages cross $200,000 in the calendar year (with different thresholds on your return depending on filing status).⁷

So the minimum payroll bite on an overtime dollar is 7.65%, and it applies whether the hour qualifies for the deduction or not.

Federal Income Tax on the Rest

Any overtime pay that isn’t covered by the deduction (the base half of each overtime hour, hours beyond the $12,500 cap, or hours triggered by Nevada’s daily rule) gets taxed as ordinary income at your regular federal bracket. For 2026, single-filer brackets run from 10% on the first $12,400 up through 37% above $640,600.⁸

The brackets are progressive. Only the income sitting inside a bracket is taxed at that bracket’s rate, so crossing a threshold with overtime doesn’t retax your earlier earnings at the higher rate. A base salary of $48,000 plus overtime bringing you to $56,000 means roughly $5,600 gets taxed at 22% and everything below $50,400 stays at 12% or lower.

Employers usually withhold on overtime one of two ways: a flat 22% supplemental rate, or by combining overtime with regular pay and withholding based on your W-4.⁹ Both are estimates. If overtime is a regular part of your income, running the numbers midyear can spare you either a surprise bill in April or an oversized refund that spent the year with the government.

Claiming the Deduction and Adjusting Withholding

Starting with the 2026 tax year, employers must separately report qualified overtime compensation on your W-2.³ You take the deduction on your Form 1040. If you’d rather see the benefit throughout the year in bigger paychecks, submit an updated W-4 to your employer so less federal tax is withheld up front. The IRS Tax Withholding Estimator at irs.gov can build a W-4 that accounts for the expected deduction.¹⁰

How Nevada Overtime Rules Decide Which Hours Qualify

Because only FLSA-required overtime qualifies for the federal deduction, the shape of your workweek matters. Nevada’s rule under NRS 608.018 depends on your hourly rate.

If you earn less than $18.00 per hour (one and a half times the $12.00 state minimum wage), your employer must pay time-and-a-half for hours beyond 8 in a workday or beyond 40 in a workweek. The daily trigger is what diverges from the FLSA. There’s an exception where you and your employer mutually agree in writing to a four-day, 10-hour schedule, in which case the daily trigger doesn’t apply.¹¹

If you earn $18.00 per hour or more, overtime kicks in only after 40 hours in a workweek, matching the FLSA.¹¹ For these workers, essentially every overtime hour paid is FLSA overtime and stands a good chance of qualifying for the federal deduction (subject to the premium-only rule and the income phase-out).

For lower-paid workers with irregular schedules, the two rules can create pay that Nevada requires but the federal deduction won’t touch. That doesn’t reduce your paycheck. It just means the tax benefit is narrower than the state’s overtime protections.

A Note on Exempt Workers

Nevada exempts a long list of workers from overtime altogether, including licensed professionals whose work uses their state license, outside salespeople, certain commission-based retail and service employees, agricultural workers, taxi and limousine drivers, and small-business employees where the employer’s gross sales fall under $250,000 per year.¹²¹¹ If you fall in one of these categories, you generally don’t receive overtime, and the federal deduction has nothing to attach to. The FLSA salary threshold for the white-collar exemption remains $684 per week ($35,568 per year); salaried workers paid below that are generally non-exempt and entitled to overtime, regardless of job title.

1
Nevada Legislature. The Constitution of the State of Nevada
2
Office of the Law Revision Counsel. 26 USC 225 – Qualified Overtime Compensation
3
Internal Revenue Service. Questions and Answers About the New Deduction for Qualified Overtime Compensation
4
Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
5
Social Security Administration. Contribution and Benefit Base
6
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
7
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
8
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
9
Internal Revenue Service. Publication 15 – Employers Tax Guide
10
Internal Revenue Service. Tax Withholding Estimator
11
Nevada Legislature. Nevada Revised Statutes 608 – Compensation, Wages and Hours
12
State of Nevada Office of the Labor Commissioner. Exempt Employees