State vs. Federal Overtime: Which Hours Count for the Federal Deduction

By the TaxCut Calculator Editorial Team · Updated November 14, 2026 · Figures checked against official sources · How we verify

Short answer: The federal deduction counts only the overtime premium that the federal Fair Labor Standards Act requires, generally the "half" portion of time-and-a-half for hours over 40 in a workweek. Overtime that only state law requires, such as daily overtime after 8 hours in California or Alaska, or the second half of double time, is not qualified unless the FLSA also requires it. Higher state thresholds (Minnesota's 48 hours) don't reduce the FLSA overtime you earn after 40.

Section 7FLSA section that defines qualified overtime

40 hoursFederal weekly overtime threshold

8 / 12California daily overtime / double-time hours

48 hoursMinnesota's weekly state threshold (DOL table)

The rule in one sentence

The IRS says qualified overtime compensation is overtime compensation paid to an individual that is required under section 7 of the Fair Labor Standards Act and exceeds the regular rate, and that the person must be covered by and not exempt from the FLSA's overtime requirement. The W-2 instructions repeat the example: only the "half" portion of "time-and-a-half" is reported with code TT. State daily overtime is a separate legal obligation, so it doesn't automatically count. This is our reading of the IRS definition; the IRS has not, to our knowledge, published a state-law example.

How state overtime rules differ

The U.S. Department of Labor's state table (updated November 5, 2026) lists these differences from the ordinary weekly-40 pattern:

State	State rule (per DOL table)	Effect on qualified overtime
California	Daily 8 (time and a half) and 12 (double time); weekly 40; first 8 hours on a 7th day at 1.5×, over 8 on the 7th day at 2×	Only hours over 40 a week (at the half-time premium) are FLSA-required
Alaska	Daily 8, weekly 40; 10-hour day allowed under an approved plan; not for employers with fewer than 4 employees	Daily hours count only if they also exceed 40 in the week
Colorado	Daily 12, weekly 40 (retail and service, commercial support, food and beverage, health and medical)	Same pattern: FLSA covers weekly overtime
Nevada	Daily 8 for employees earning under 1.5 times the minimum wage; weekly 40	Daily hours generally beyond the FLSA
Minnesota	Weekly 48	FLSA still requires overtime after 40
Oregon	Weekly 40; 10 hours a day in certain manufacturing, cannery and packing work	Daily hours beyond FLSA unless also over 40/week
Kentucky, Connecticut	7th-day overtime (Connecticut: restaurants and hotel restaurants)	Counts only if the week exceeds 40 hours

Worked examples: a $30 an hour California employee, and a Minnesota one

	CA: 5×10-hr days	CA: 4×10-hr days	CA: 4×13-hr days	MN: 45-hr weeks at $22
Hours per week	50	40	52	45
State-required overtime hours	10	8 (daily)	16 at 1.5× + 4 at 2×	0 (below 48)
FLSA overtime hours (over 40)	10	0	12	5
Qualified premium per year (50 weeks)	$7,500	$0	$9,000	$2,750
Deduction	$7,500	$0	$9,000	$2,750
Estimated federal income tax saved (2026, single)	$1,650	$0	$1,980	$330

The first worker has the same 10 overtime hours under state and federal law, so the whole half-time premium is qualified. The second worker earns 8 hours a week of daily overtime under California law but never exceeds 40 hours, so there is no FLSA overtime and no qualified overtime. The third works four 13-hour days: California requires 1.5× for hours 9 to 12 and 2× for hour 13, but the FLSA requires overtime only for the 12 hours over 40, so qualified overtime is $9,000 a year while the worker's actual state-required premium is larger. The Minnesota employee's 5 hours over 40 are FLSA overtime even though the state's own threshold is 48.

Illustrative: 50 weeks, no bonuses or differentials, single filer, 2026 standard deduction. We treat "required under section 7" strictly as hours over 40 in the workweek at 1.5 times the regular rate.

What to do

Look at box 12 code TT on your 2026 W-2 (employers must report qualified overtime separately starting with 2026). If you work in a daily-overtime state and your total overtime pay is much larger than the amount in code TT, that gap is probably state-required overtime that doesn't count. Use the overtime calculator with your FLSA overtime hours (over 40 a week) for an estimate.

Frequently asked questions

If my state requires overtime after 8 hours a day, is that overtime deductible?

Only to the extent the FLSA also requires it. The IRS defines qualified overtime compensation as overtime "required under section 7 of the FLSA" that exceeds the regular rate. Daily overtime required only by state law (for example, in California or Alaska) isn't required by section 7, so under our reading it is not qualified unless the same hours are also over 40 in the workweek. The IRS has not published an example for state daily overtime that we could find.

What if my state's overtime threshold is higher than 40 hours?

The federal rule still applies. The Department of Labor lists Minnesota's premium pay threshold as 48 hours a week, but a covered, non-exempt Minnesota employee still must receive FLSA overtime after 40 hours, and that FLSA overtime is the qualified overtime.

What about double time in California?

California requires double time after 12 hours in a day and for hours beyond 8 on a seventh consecutive day. The FLSA requires only time-and-a-half for hours over 40 in a week, so only the half-time portion on the hours that exceed 40 is qualified. The extra pay above time-and-a-half is not required by section 7.

What are the state overtime rules that differ most from the FLSA?

From the U.S. Department of Labor's state table: California (daily 8 and 12, seventh day), Alaska (daily 8), Colorado (daily 12), Nevada (daily 8 for employees earning under 1.5 times the minimum wage), Oregon (10 hours a day in certain manufacturing and packing), Kentucky and Connecticut restaurants (seventh day), and Minnesota (48 hours a week). Most other states with an overtime law use the weekly 40-hour standard.

Will my W-2 code TT include state-required overtime?

Employers are told to report in box 12, code TT, the total amount of qualified overtime compensation, defined by reference to section 7 of the FLSA. If your employer reports state daily overtime in that box, ask how it was computed. The deduction you can claim is tied to the definition, not to the box.

Sources and citations

Every dollar figure on this page was checked against the official pages below on November 14, 2026. If an agency updates its guidance, the agency page controls.