No tax on overtime at a glance
- What’s deductible: the FLSA overtime premium only (the “half” of time-and-a-half), not your whole overtime check.
- Limit: $12,500 a year per return, $25,000 on a joint return.
- Phase-out: $100 less for every full $1,000 of modified AGI over $150,000 ($300,000 joint).
- Years: 2025–2028 tax years. Claimed on Schedule 1-A, with or without itemizing.
- Requirements: a Social Security number valid for employment; married couples must file jointly.
- Still taxed: Social Security, Medicare and usually state income tax.
How to use this calculator
- Pick your filing status and enter your total wages for the year, including overtime. The wages drive your tax bracket and the income phase-out.
- Enter your overtime. Choose “From hours” to use your regular hourly rate, overtime hours per week and weeks with overtime, or enter the qualified premium directly if you have it from your W-2 (box 12, code TT) or pay stubs.
- Open “Other income, 401(k), children & age” if they apply. Pre-tax 401(k) contributions lower the income used for the phase-out; children and age 65+ change your credits and deductions.
- Read the result: your deduction, your federal income tax with and without it, and the Social Security and Medicare tax you still owe on the overtime.
What counts as qualified overtime?
Under the Fair Labor Standards Act (FLSA), covered non-exempt employees must be paid at least one and one-half times their regular rate for hours over 40 in a workweek. The new deduction covers only the part of that pay that is above the regular rate — the “half.” The straight-time pay for the same hours is taxed as usual. If your employer pays more than the law requires, such as double time, only the FLSA-required premium qualifies.
Q = H × ½ × R
- Q
- qualified overtime compensation for the year
- H
- FLSA overtime hours (hours over 40 in each workweek) for the year
- R
- your regular rate of pay (it also counts most other pay, such as non-discretionary bonuses)
D = max(0, min(Q, C) − 100 × floor((M − T) / 1,000))
- D
- overtime deduction on Schedule 1-A
- C
- cap: $12,500, or $25,000 for married filing jointly
- M
- modified adjusted gross income (AGI for most people)
- T
- phase-out threshold: $150,000, or $300,000 for married filing jointly (no reduction when M ≤ T)
Worked example from hours
You earn $25 an hour and work 8 overtime hours a week for 50 weeks — 400 overtime hours. At time-and-a-half those hours pay $15,000, but only the premium qualifies: ½ × $25 × 400 = $5,000. As a single filer with $67,000 of total wages, your taxable income falls from $50,900 to $45,900. The deduction removes $500 at 22% and $4,500 at 12%, so your 2026 federal income tax drops from $5,910 to $5,260 — a saving of $650. You still owe about $1,148 of Social Security and Medicare tax on the $15,000 of overtime pay.
Who qualifies for no tax on overtime?
You qualify if you are an FLSA overtime-eligible employee — covered by the FLSA and not exempt from its overtime rule — and you receive overtime required by section 7 of the FLSA. According to the IRS, a worker who isn’t owed FLSA overtime doesn’t receive qualified overtime compensation regardless of other laws or a collective bargaining agreement. Common exemptions include:
- executive, administrative and professional employees (including teachers), and certain computer employees;
- outside sales employees and certain commissioned retail or service employees;
- employees of railroads and air carriers, taxi drivers, and certain motor-carrier employees;
- owners of at least 20% of the business who actively manage it.
You also need a Social Security number valid for employment, issued before your return’s due date (including extensions), on the return. If you’re married, you must file jointly; married filing separately can’t claim the deduction. Federal employees can check block 35 (“FLSA Category”) of their SF-50: “N” means overtime-eligible. Workers under special FLSA overtime systems — such as public-sector police and firefighters, hospital and residential care staff, and state or local government employees who receive comp time instead of cash overtime — figure the premium under those rules.
How much will no tax on overtime save me?
Estimated 2026 federal income tax savings for a single filer with the standard deduction, no children and no other income. “Income” is total wages including overtime.
| Income | $2,000 premium | $5,000 premium | $8,000 premium | $12,500 premium |
|---|---|---|---|---|
| $50,000 | $240 | $600 | $960 | $1,500 |
| $75,000 | $440 | $1,100 | $1,760 | $2,350 |
| $100,000 | $440 | $1,100 | $1,760 | $2,750 |
| $150,000 | $480 | $1,200 | $1,920 | $3,000 |
| $175,000 | $0 | $600 | $1,320 | $2,400 |
The same estimate for a married couple filing jointly, whose cap is $25,000:
| Income | $5,000 premium | $10,000 premium | $15,000 premium | $25,000 premium |
|---|---|---|---|---|
| $80,000 | $600 | $1,200 | $1,800 | $2,960 |
| $120,000 | $600 | $1,200 | $1,800 | $3,000 |
| $200,000 | $1,100 | $2,200 | $3,300 | $5,500 |
| $300,000 | $1,200 | $2,400 | $3,600 | $6,000 |
| $350,000 | $0 | $1,200 | $2,400 | $4,800 |
Savings rise with your tax bracket until the phase-out starts, then fall. The deduction is worth the least to lower earners: when the standard deduction and child tax credit already cover your tax, it may save nothing. For example, a head of household earning $30,000 with two children and $3,000 of qualified overtime saves $0 in our estimate.
Overtime deduction limit and income phase-out
The deduction can’t exceed $12,500 per return ($25,000 on a joint return, even if both spouses work overtime). It is then reduced by $100 for each full $1,000 of modified AGI above $150,000 ($300,000 for joint filers) — Schedule 1-A rounds the result down to a whole number of thousands, so $151,999 of MAGI costs $100, not $200. Modified AGI is your AGI plus a few excluded foreign and territory amounts; the overtime deduction itself doesn’t reduce it.
| MAGI over threshold | Single MAGI | Single deduction | Joint MAGI | Joint deduction |
|---|---|---|---|---|
| $0 over | $150,000 | $12,500 | $300,000 | $25,000 |
| $10,000 over | $160,000 | $11,500 | $310,000 | $24,000 |
| $25,000 over | $175,000 | $10,000 | $325,000 | $22,500 |
| $50,000 over | $200,000 | $7,500 | $350,000 | $20,000 |
| $75,000 over | $225,000 | $5,000 | $375,000 | $17,500 |
| $100,000 over | $250,000 | $2,500 | $400,000 | $15,000 |
| $125,000 over | $275,000 | $0 | $425,000 | $12,500 |
| $200,000 over | $350,000 | $0 | $500,000 | $5,000 |
| $250,000 over | $400,000 | $0 | $550,000 | $0 |
Where to find your qualified overtime amount
2026 and later: employers must report qualified overtime compensation on Form W-2 in box 12, code TT (or, rarely, on Form 1099-NEC box 1d or 1099-MISC box 14). That amount is the full premium; Schedule 1-A applies the cap and phase-out. The IRS says you can deduct only what is reported there. If your employer left it out or understated it, ask for a corrected Form W-2c — a substitute Form 4852 isn’t accepted for this deduction.
2025 returns: separate reporting wasn’t required. Under IRS Notice 2025-69 you could use a premium your employer showed in box 14 or on a separate statement, or figure it from full-year pay records: one-third of overtime pay reported at time-and-a-half, one-fourth of overtime pay reported at double time, or your regular rate times hours over 40 times one-half.
Taxes you still pay on overtime
- Social Security and Medicare: overtime is still wages for FICA — 6.2% for Social Security (up to the $184,500 wage base in 2026) and 1.45% for Medicare.
- Withholding: employers keep withholding federal income tax on overtime. To get the savings in your paychecks instead of your refund, enter the expected deduction on Step 4(b) of a new Form W-4. See our paycheck calculator to check your take-home pay.
- State income tax: each state decides whether to follow the federal deduction, so overtime is usually still taxed by your state. Rules are changing quickly — confirm with your state’s tax agency before you file.
States with overtime-specific rules in our state tax data (not a complete list):
| State | Overtime treatment |
|---|---|
| Alabama | HB 527 (signed April 2026) creates an Alabama deduction for qualified overtime compensation, up to $1,000, for tax years 2026 through 2028. |
| Arizona | Under HB 4168, Arizona subtracts federal qualified tips (IRC 224), qualified overtime (IRC 225) and the $6,000 enhanced senior deduction starting 2025 (car-loan interest for 2025 only), subject to the federal limits and phase-outs. |
| California | Federal below-the-line deductions created by the 2025 federal tax law (tips, overtime, car-loan interest, senior deduction) do not carry over to the California return unless California enacts them. |
| Colorado | Overtime: for 2026 and later, any federal deduction for qualified overtime compensation must be added back on the Colorado return. |
| District of Columbia | For tax years 2026-2028 the FY2027 Budget Support Act lets DC taxpayers claim the federal-style deductions for qualified tips, overtime, car-loan interest and the $6,000 senior deduction (these were not allowed for 2025). |
| Georgia | For 2026-2028, up to $1,750 of qualified overtime pay (hourly full-time workers) and, from 2026, up to $1,750 of cash tips can be subtracted; Georgia does not adopt the larger federal tips/overtime deductions. |
| Idaho | Idaho uses the federal standard deduction ($16,100 single/MFS, $24,150 HOH, $32,200 joint for 2026) and conforms to the IRC as of January 1, 2026 (HB 559 of 2026), including the federal Schedule 1-A deductions: residents subtract the federal qualified tips, overtime, car-loan interest and $6,000 senior deduction amounts (Idaho Worksheet 1-A). |
| Maine | Maine decoupled from the federal tips, overtime, senior and car-loan-interest deductions. |
| Michigan | 2025 PA 24, signed Oct. 7, 2025, creates temporary state deductions for tax years 2026-2028 that mirror the federal deductions for qualified tips (IRC section 224) and qualified overtime compensation (IRC section 225, the premium portion only). |
| South Carolina | The federal standard deduction, itemized deductions, QBI deduction and the new federal senior, tips, overtime and car-loan-interest deductions are not allowed (IRC 63(b)-(g) decoupled). |
| Wisconsin | Wisconsin starts from federal AGI and has not adopted the federal tips and overtime deductions for 2026. A May 2026 special-session deal that would have excluded tips and overtime from 2026 income failed in the state Senate (15-18) on May 13, 2026. |
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming don’t tax wage income, so if you live and work there, your overtime isn’t subject to state income tax.
Related calculators
Earn tips too? The no tax on tips calculator estimates the separate deduction for qualified tips. For your full federal and state bill, use the income tax calculator, and to convert an hourly rate to annual pay, try the salary calculator.
Frequently asked questions
Is overtime pay tax-free now?
No. For tax years 2025 through 2028 you can deduct the qualified overtime premium — the extra “half” of time-and-a-half required by federal law — up to $12,500 a year ($25,000 on a joint return). Your straight-time pay for overtime hours is still taxed, and all overtime pay remains subject to Social Security and Medicare and, in most states, state income tax. The deduction lowers federal income tax only.
How much of my overtime pay is deductible?
Only the premium. At time-and-a-half, one-third of your overtime pay is the premium: at $25 an hour, each overtime hour pays $37.50 and $12.50 of it qualifies. If you’re paid double time, the qualified amount is still half your regular rate per overtime hour, because only the overtime required by the Fair Labor Standards Act counts.
How much will no tax on overtime save me?
Roughly your tax bracket times the deductible amount. A single filer earning $67,000 with $5,000 of qualified overtime saves about $650, since $4,500 of the deduction comes out of the 12% bracket rather than 22%. At $100,000 with $8,000 of qualified overtime the saving is $1,760, all at 22%. If your standard deduction and credits already wipe out your income tax, the deduction may save little or nothing.
What is the income limit for the overtime deduction?
The deduction shrinks once modified adjusted gross income (MAGI) passes $150,000, or $300,000 on a joint return: it drops $100 for every full $1,000 above the threshold. A single filer with the full $12,500 deduction loses it entirely at $275,000 of MAGI; a joint return with $25,000 loses it at $550,000. The deduction itself doesn’t lower your MAGI.
Do I have to itemize to claim the overtime deduction?
No. The IRS says the deduction is available whether you itemize or take the standard deduction. You claim it on Schedule 1-A (Form 1040), Part III, and it is subtracted after adjusted gross income, alongside your standard or itemized deduction. You need a Social Security number valid for employment, and married couples must file a joint return.
Do salaried workers or state-law overtime qualify?
Only workers owed overtime under the federal Fair Labor Standards Act qualify. Employees exempt from FLSA overtime, such as most salaried executive, administrative and professional staff, don’t qualify even if a union contract or state law pays them overtime. Extra premiums paid only because of state rules (like daily overtime), a contract or company policy don’t count beyond what the FLSA requires. Non-exempt salaried employees who are owed FLSA overtime can qualify.
Where do I find my qualified overtime on my W-2?
Starting with 2026, employers must report qualified overtime compensation on Form W-2 in box 12 with code TT, and you can deduct only what is reported there or on a corrected Form W-2c. For 2025, separate reporting wasn’t required: you could use an amount your employer showed in box 14 or on a separate statement, or figure it from your year-end pay records — for example, one-third of overtime pay shown at time-and-a-half.
Is overtime still subject to Social Security and Medicare tax?
Yes. The deduction only reduces federal income tax. Overtime is still wages for Social Security (6.2%) and Medicare (1.45%), and your employer keeps withholding federal income tax on it unless you give them a new Form W-4 that accounts for the deduction. For example, a single filer earning $67,000 still pays about $1,148 of FICA on $15,000 of overtime pay.