Overtime Tax Savings in Illinois

Why Illinois still taxes your overtime

The four OBBBA deductions are below the line. They reduce federal taxable income — Schedule 1-A totals onto Form 1040 line 13b — and they never reduce federal adjusted gross income. Illinois begins its own calculation from federal agi, which the deduction never touched.

So nothing was decoupled and no vote was held. Illinois simply carried on taxing overtime the way it always had, because from the state's point of view nothing about your income changed. This is the position most American workers are in, and it is the part of "no tax on overtime" that the name obscures.

Illinois charges a flat 4.95% on wage income. On the $4,500 in the example above, the state still takes about $223 — an effective 4.95% on that income, on top of the Social Security and Medicare that no state or federal provision removes.

What $4,500 of overtime premium is actually worth in Illinois

Take a single filer with $62,400 of other wages and $4,500 of qualified overtime premium — the defaults loaded in the calculator above. Federal taxable income falls by the full $4,500, worth $580 at this filer's bracket.

Illinois taxable income does not move at all, so the state still collects about $223 on that money. Add $344 of Social Security and Medicare, which no OBBBA provision reduces, and the total tax on your $4,500 falls from about $1,147 to about $567.

Move the sliders to your own numbers and the arithmetic follows. The two things that will not change are Illinois's treatment — the state taxes this money regardless of what your federal return says and the payroll tax, which applies to the first dollar and the last.

What overtime tax relief does not do, in Illinois or anywhere

Your overtime is still wages. It stays in boxes 1, 3 and 5 of your W-2 — the box 12 code TT is informational — so Social Security and Medicare are computed on exactly the same amount as before.

Only the premium half qualifies — the amount paid in excess of your regular rate, which is one third of a time-and-a-half payment. $13,500 of overtime pay produces a $4,500 deduction, not $13,500. The cap is $12,500 ($25,000 filing jointly) and it phases out above $150,000 of MAGI.

And all four OBBBA deductions expire after tax year 2028. Whatever Illinois does between now and then, the federal provision has a fixed end date.

Frequently asked questions