Does Iowa Tax Overtime Pay? (2026)
Yes — at the state level, Iowa taxes overtime exactly like regular wages. But the new federal overtime deduction (2025–2028) changes the overall math significantly. Here's the full picture.
The three layers of tax on Iowa overtime
- Federal income tax: overtime is taxable — but for 2026, the premium ("half") portion of FLSA time-and-a-half is deductible up to $12,500 (single) / $25,000 (joint). Estimate yours with the overtime deduction calculator.
- Payroll taxes: Social Security (6.2%) and Medicare (1.45%) always apply to overtime — no exceptions.
- Iowa state tax: overtime is added to your regular wages and taxed under the normal flat 3.8% rate. Iowa has not adopted the federal overtime deduction.
What $5,000 of overtime actually costs in tax
Say you earn $5,000 of overtime (time-and-a-half) in Iowa as a typical single filer:
- Payroll taxes take 7.65% ≈ $383.
- Iowa state tax ≈ $190 (at 3.8%).
- Federal income tax applies to the full $5,000 through withholding — but at filing, the ~$1,667 premium portion is deductible, worth roughly $200–$400 back depending on your bracket.
Bottom line: working overtime in Iowa is more rewarding in 2026 than the raw withholding suggests — most workers see the federal benefit as a larger refund.
See your full paycheck picture
The Iowa paycheck calculator shows your complete 2026 take-home pay — federal, FICA, and Iowa state tax — per paycheck, month, or year.
Frequently asked questions
Did Iowa adopt the federal "no tax on overtime" rule?
No. The overtime deduction is federal-only, and Iowa continues to tax overtime as ordinary wages. A few states have debated their own exemptions — check the state DOR for current-year changes.
Is overtime withheld at a higher rate?
It can look that way on a single paycheck — a big OT check pushes that period's withholding into a higher bracket temporarily. At filing, everything settles to your actual annual rate, so the 'overtime is taxed more' feeling is a withholding illusion, not a real higher tax.
Does the federal overtime deduction lower my state taxable income?
Generally no — most states, including Iowa, calculate state tax without the new federal deduction. It reduces federal taxable income only.