Fact Check: Does "No Tax on Overtime" Lower State Taxes?

5 states start state-tax base from federal taxable income (Colorado, Idaho, North Dakota, Oregon, South Carolina); only those 5 are structurally capable of passing the federal § 225 deduction through. Of those 5, Colorado decoupled via HB 25-1296 (signed May 16, 2025, before OBBB enacted). The remaining 4 — Oregon (retained affirmatively via SB 1507), Idaho, North Dakota, South Carolina — pass through, either by affirmative legislation or by default rolling conformity.

26 U.S.C. § 225(b) caps the deduction at $12,500 single / $25,000 joint; § 225(g) sunsets it for tax years beginning after December 31, 2028. § 225(c) restricts qualifying overtime to the FLSA § 7 weekly-40 premium portion (the 0.5× extra above the regular rate). Detail covered in the federal-pillar fact-check.

The article's Quick Reference identifies these 4 jurisdictions: Oregon (retained via SB 1507, signed April 9, 2026), Idaho, North Dakota, South Carolina (passive — rolling conformity, no decoupling legislation). Colorado was the fifth federal-taxable-income state but decoupled affirmatively via HB 25-1296 before OBBB was enacted.

Operational restatement of the 4-state passthrough list. Per the article's Quick Reference and per-state statutes covered in the federal-pillar fact-check and this article's State-by-State table.

26 U.S.C. § 6051(a)(19) is the federal statutory basis for Box 12 code TT reporting. The reporting requirement does not vary by state-conformity posture — federal information returns use the same Box 12 codes nationwide.

California SB 711 (Chapter 231 of 2025) sets state IRC conformity date to January 1, 2025, before OBBB's July 4, 2025 enactment date. The federal § 225 deduction falls outside California's tax base. California also starts from federal AGI as its tax-base anchor, so the deduction has no structural path even before SB 711's conformity-date freeze.

Both Oregon and Colorado start state-tax base from federal taxable income, putting both in the structurally-capable-of-passthrough group. Oregon retained the passthrough affirmatively via SB 1507 (signed April 9, 2026). Colorado preemptively decoupled via HB 25-1296 (signed May 16, 2025, before OBBB was enacted). Same starting structure, opposite policy outcomes.

The 31 states + DC that start state-tax base from federal AGI cannot pass through the § 225 deduction (it's below-the-line, after AGI). The 5 own-tax-base states (Alabama, Arkansas, Mississippi, New Jersey, Pennsylvania) have no automatic passthrough either. The 9 no-income-tax states (AK, FL, NV, NH, SD, TN, TX, WA, WY) don't tax wages at the state level. Net: 46 of 50 states do not honor the federal deduction at the state level.

§ 225 is structured as a below-the-line deduction on new Schedule 1-A (Form 1040 line 13b); it reduces federal taxable income (line 15) but NOT federal AGI (line 11b). Most states start their tax base from federal AGI, so the deduction has no pathway to state taxable income. The quick read translates "AGI" into "your federal income before the no-tax-on-overtime deduction comes off" for plain-English readability.

50 states minus the 4 that pass it through (Oregon, Idaho, North Dakota, South Carolina) = 46 states where the federal deduction does not reduce state income tax. The article's mistake category around employee communications calls out the same risk: employees who hear "no tax on overtime" expect their state taxes to go down too, and in 46 states that expectation is wrong.

Synthesis from the article's through-line. The 4 passthrough states are the only jurisdictions where the federal deduction reduces state tax; in the other 46, the federal deduction is the entire tax benefit. Aligns with the federal-pillar quick-read's close ("When in doubt, leave it out of Box 12") — different default for a different reader (this one is the small-employer reader trying to communicate to employees correctly).