No Tax on Overtime Calculator (2026)
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The One Big Beautiful Bill Act created a federal deduction for qualified overtime compensation of up to $12,500 a year ($25,000 on a joint return), available for tax years 2025 through 2028. Only the premium half of time-and-a-half counts, and payroll taxes are untouched. Enter your hourly rate, your overtime hours and your bracket to see the deductible premium, the tax it saves and what actually lands in your pocket.
How the No Tax on Overtime deduction really works
Section 225 of the tax code, added by the One Big Beautiful Bill Act on July 4, 2025, does not exempt overtime pay. It lets you deduct the premium portion of qualified overtime — the "half" in time-and-a-half — from taxable income, up to $12,500 a year for single filers and $25,000 for a married couple filing jointly.
That distinction is where most online estimates go wrong. If your regular rate is $30 an hour, an overtime hour pays $45. Of that $45, the first $30 is ordinary wages and only the $15 premium is qualified overtime compensation. Work 500 overtime hours in a year and you earn $22,500 in overtime pay but deduct just $7,500. Even if your employer is generous and pays double time, only the FLSA-required half is deductible — the rest of the premium is ordinary wages.
The deduction is claimed on Schedule 1-A (Form 1040), Part III, and is available whether or not you itemize, so it stacks on top of the 2026 standard deduction of $16,100 (single) or $32,200 (joint). Like the tips deduction it is temporary: tax years 2025 through 2028 only, with dollar limits that Congress chose not to index for inflation.
Only FLSA overtime counts
The overtime has to be required by section 7 of the Fair Labor Standards Act — that is, hours beyond 40 in a workweek paid to a non-exempt employee. Two large groups miss out.
The first is exempt employees: salaried managers, most professionals, administrative staff above the salary threshold and outside sales workers are not covered by the FLSA overtime rule, so any extra pay they receive for long hours is not qualified overtime.
The second is overtime that exists only because of something other than the FLSA. Daily overtime after 8 hours under California law, the seventh-consecutive-day premium, weekend or holiday differentials, shift premiums and union-contract overtime that goes beyond federal requirements are all excluded to the extent the FLSA itself did not require them. Bonuses and voluntary extra pay do not qualify either. If your paycheck mixes several of these, only the federally required portion belongs on Schedule 1-A.
Worked example: $25 an hour, 10 overtime hours a week
Take a warehouse worker paid $25 an hour who works 10 overtime hours a week for 48 weeks — 480 overtime hours in the year.
Overtime pay: $25 × 1.5 × 480 = $18,000. Deductible premium: $25 × 0.5 × 480 = $6,000. That $6,000 is below the $12,500 cap, and with total income around $70,000 the phase-out does not apply, so the full $6,000 is deductible. In the 22% bracket that is $1,320 of federal income tax saved.
Now the reality check. FICA of 7.65% on the full $18,000 of overtime pay is $1,377 — more than the deduction saves — and the $12,000 of overtime that is not premium remains fully taxable, costing another $2,640 in federal income tax at 22%. The worker keeps roughly $13,983 of the $18,000, an effective federal burden of about 22.3% instead of the 29.65% they would have faced without the new deduction.
Deduction and savings by wage and hours
The table below runs this calculator for a single filer whose income stays below the phase-out threshold, at a 22% marginal rate. The premium column is what the law actually lets you deduct; note how quickly high earners with heavy overtime hit the $12,500 ceiling.
| Wage / OT hours per week / weeks | Total overtime pay | Deductible premium | Deduction after cap | Tax saved at 22% |
|---|---|---|---|---|
| $20 / 5 h / 48 weeks | $7,200 | $2,400 | $2,400 | $528 |
| $25 / 10 h / 48 weeks | $18,000 | $6,000 | $6,000 | $1,320 |
| $30 / 10 h / 50 weeks | $22,500 | $7,500 | $7,500 | $1,650 |
| $35 / 15 h / 48 weeks | $37,800 | $12,600 | $12,500 (capped) | $2,750 |
| $45 / 12 h / 48 weeks | $38,880 | $12,960 | $12,500 (capped) | $2,750 |
The $150,000 / $300,000 phase-out
The deduction starts to disappear once modified adjusted gross income passes $150,000 for single filers or $300,000 for joint filers. It falls by $100 for every full $1,000 of MAGI above the threshold — Schedule 1-A divides the excess by 1,000 and drops the fraction, so $500 of extra income costs nothing while $1,000 costs $100 of deduction.
Because the single cap is $12,500, the deduction reaches zero at $275,000 of MAGI for a single filer. Joint filers, with a $25,000 cap, lose it entirely at $550,000. High-overtime trades — line workers on outage season, nurses picking up doubles, oilfield and utility crews — can cross the single threshold in a strong year, which is why the calculator asks for your total income and not just your overtime.
| MAGI | Deduction — single filer (premium of $12,500+) | Deduction — joint filers (premium of $25,000+) |
|---|---|---|
| $150,000 or less | $12,500 | $25,000 |
| $200,000 | $7,500 | $25,000 |
| $275,000 or more (single limit gone) | $0 | $25,000 |
| $350,000 | $0 | $20,000 |
| $450,000 | $0 | $10,000 |
| $550,000 or more | $0 | $0 |
What does not change: FICA, state tax and your paycheck
Payroll taxes are untouched. Social Security at 6.2% (on wages up to the 2026 wage base of $184,500) and Medicare at 1.45% with no ceiling still come out of every overtime dollar, and an extra 0.9% Medicare surtax applies above $200,000 of wages. Filing a return does not refund those amounts. Employers likewise keep paying their matching share.
State income tax follows its own logic. States without an income tax are unaffected, states that start from federal adjusted gross income may or may not pass the deduction through, and at least one — Colorado — has legislated to keep taxing overtime regardless of the federal rule, effective 2027. Check your state before budgeting the savings.
Reporting improved for 2026. Employers must now report qualified overtime compensation in box 12 of Form W-2 using code "TT", so you no longer have to reconstruct the premium from pay stubs the way many workers did for the 2025 return under the IRS transition relief in Notice 2025-69. Carry that box 12 amount to Schedule 1-A, Part III, add your MAGI and the threshold, and the phase-out lines produce the deduction.
One last practical point: withholding tables were not fully rebuilt around these deductions, so for most workers the benefit shows up as a larger refund rather than a fatter weekly check. If you want it sooner, a revised Form W-4 can reduce withholding — but leave room for error, since a busy overtime year can push your income into the phase-out and shrink the deduction you were counting on.
Frequently asked questions
Is my whole overtime paycheck tax-free now?
No. Only the premium half of time-and-a-half is deductible, only against federal income tax, and only up to $12,500 ($25,000 joint). The base portion of overtime pay stays fully taxable, and Social Security and Medicare taxes apply to all of it.
I get double time on holidays. Does the full premium count?
No. Only the portion the Fair Labor Standards Act requires — the half above your regular rate — is qualified overtime compensation. If your employer pays 2x, the extra half beyond the FLSA requirement is ordinary taxable wages.
I am a salaried manager who works 60 hours a week. Can I claim it?
Only if you are non-exempt and actually receive FLSA overtime pay. Exempt salaried employees — most managers, professionals, administrative staff above the salary threshold and outside sales workers — are not covered by the FLSA overtime rule, so they have no qualified overtime compensation to deduct.
My state law gives me overtime after 8 hours in a day. Does that qualify?
Not by itself. The deduction covers overtime required by section 7 of the FLSA, which is based on hours over 40 in a workweek. Premiums that exist only because of state law, a union contract or company policy fall outside the deduction, even though they are real money in your pocket.
How is the $25,000 joint limit shared?
It is a single limit for the return, not $25,000 each. Two spouses who both work overtime add their qualified premiums together and stop at $25,000. Married taxpayers must file jointly to claim the deduction at all.
How long will the overtime deduction last?
Tax years 2025 through 2028. Overtime worked from 2029 onward is fully taxable again unless Congress acts. The $12,500/$25,000 caps and the $150,000/$300,000 thresholds are fixed amounts with no inflation adjustment.
Sources
Estimates for federal income tax only, based on IRC § 225 as enacted by the One Big Beautiful Bill Act, IRS guidance on qualified overtime compensation, Schedule 1-A (Form 1040) and the 2026 brackets in Rev. Proc. 2025-32. The calculator assumes standard FLSA time-and-a-half on hours beyond 40 per week. FICA is estimated at a flat 7.65% and ignores the $184,500 Social Security wage base and the 0.9% additional Medicare tax. State and local income taxes vary by state and are not included. The deduction expires after tax year 2028. General information only, not tax advice — check your situation with a CPA or enrolled agent.
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Also available in Portuguese: Calculadora de Imposto sobre Hora Extra nos EUA (No Tax on Overtime 2026)