In Kansas, the federal “No Tax on Overtime” deduction starts with overtime pay earned on or after January 1, 2025. You claim it on the federal return you file during the 2026 filing season, and because Kansas calculates state income tax from your federal adjusted gross income, the same deduction automatically lowers your Kansas tax bill. Overtime worked in 2024 or earlier does not qualify, no matter when the return is filed.1Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
The deduction was created by the One Big Beautiful Bill Act, signed July 4, 2025. It is an above-the-line deduction, which means you can claim it whether you itemize or take the standard deduction. It applies to tax years 2025 through 2028.
Kansas considered a separate state-level overtime subtraction through Senate Bill 311, which would have amended K.S.A. 79-32,117. That bill died in committee in April 2026.2Kansas Legislature. SB 311 There is no Kansas-only overtime exemption on the books, but Kansas workers still get state tax relief through the federal deduction’s pass-through effect.
What the Deduction Actually Covers
This is where people get surprised. The deduction does not wipe out tax on your whole overtime paycheck. It only covers the premium portion, meaning the extra pay above your regular hourly rate. If you earn $24 per hour and $36 per hour for overtime, only the extra $12 per overtime hour is deductible. The base $24 of each overtime hour is still taxed as ordinary income.3Internal Revenue Service. What to Know About the No Tax on Overtime Deduction
The IRS calls this the “half” portion of time-and-a-half pay. For a worker on the standard 1.5x overtime rate, exactly one-third of each overtime dollar is deductible. If your employer pays double-time, the full amount above your regular rate counts.
Who Qualifies
The deduction is limited to overtime pay required under Section 7 of the Fair Labor Standards Act. In practice, you need to be an FLSA overtime-eligible employee, which usually means an hourly worker who earns time-and-a-half for hours past 40 in a workweek.4Internal Revenue Service. Questions and Answers About the New Deduction for Qualified Overtime Compensation
Salaried workers classified as exempt under the FLSA do not qualify, even if they regularly work more than 40 hours. The IRS has stated plainly that if you are ineligible for overtime under the FLSA, your extra pay is not “qualified overtime compensation” for this deduction, regardless of what a union contract, company policy, or state rule provides. Most administrative, executive, and professional roles above certain salary thresholds are exempt.
Your overtime also has to be reported on a Form W-2, Form 1099, or another specified statement. If your pay records don’t separate regular and overtime earnings, you won’t be able to substantiate the deduction.
There’s an income ceiling, too. The deduction phases out once modified adjusted gross income passes $150,000 for single filers or $300,000 for joint filers. Most hourly workers earning FLSA-required overtime fall well below that, but a high-overtime earner in a well-paid trade could see the benefit shrink or disappear.
How Much Kansas Tax It Saves
Kansas starts its income tax calculation from your federal AGI, then applies state additions and subtractions to reach Kansas adjusted gross income.5Kansas Legislature. Kansas Code 79-32,117 – Kansas Adjusted Gross Income of an Individual Because the overtime deduction is above the line, it lowers your federal AGI before Kansas sees it. That smaller number carries straight through to your state return.
Say you earned $8,000 in overtime premium pay during 2025. The federal deduction removes $8,000 from your federal AGI. When you prepare your Kansas return, that $8,000 is already gone from the starting number. You pay no federal tax on it and no Kansas tax on it. With Kansas rates currently running from 5.2% to 5.58%, the state savings on $8,000 of premium pay land somewhere around $400 to $450, on top of the federal savings.
You don’t need a special Kansas form or Schedule S entry for the overtime deduction. The federal deduction has already done the work by the time you reach your Kansas return.
Adjust Your W-4 to See It in Each Paycheck
Employers are not required to automatically reduce withholding for the overtime deduction. If you want the savings in your paycheck rather than as a refund next spring, submit a new 2025 Form W-4 to your employer. The IRS has a deductions worksheet for calculating the right amount to enter in Step 4(b) of the W-4.6Internal Revenue Service. How to Update Withholding to Account for Tax Law Changes for 2025
Skip this step and your employer will keep withholding as if overtime is fully taxable. You’ll get the money back at filing time, but you’re effectively lending it to the government interest-free until then. For workers with heavy overtime, updating the W-4 can noticeably bump up take-home pay.
Records to Keep
Claiming the overtime deduction creates a line item that the IRS or the Kansas Department of Revenue could question. Hold onto every pay stub showing the breakdown of regular hours, overtime hours, your regular rate, and your overtime rate. Keep copies of your W-2s and any corrected versions.
The IRS generally expects you to keep tax records for three years from the date you filed the return, or two years from the date you paid the tax, whichever is later.7Internal Revenue Service. How Long Should I Keep Records? If you underreport income by more than 25% of gross income on the return, that stretches to six years. State audit windows generally fall in the three-to-five-year range, so three years after filing is a safe minimum.
If your employer’s W-2 doesn’t separate overtime premium pay from regular wages, ask for a corrected W-2. Without that breakdown, substantiating the deduction gets difficult.
The Deduction Expires After 2028
The federal overtime deduction is not permanent. It covers tax years 2025 through 2028 only. Unless Congress extends it, overtime premium pay goes back to being fully taxable at the federal level starting in 2029, and the Kansas pass-through savings disappear with it. Kansas could revisit its own overtime legislation in a future session, but as of now the federal deduction is the only overtime tax break available to Kansas workers.