No Tax on Overtime Calculator
Updated for 2026 tax year · figures checked on
For tax years 2025 through 2028, you can deduct the extra half-time part of the overtime the federal Fair Labor Standards Act requires, up to $12,500 a year ($25,000 on a joint return). It lowers your federal income tax when you file, not the overtime pay itself. Enter your rate and overtime hours to estimate the deduction.
Estimated deduction
$3,125.00
- Overtime pay for the year
- $9,375.00
- Qualified overtime (the half-time premium)
- $3,125.00
- After the $12,500 limit
- $3,125.00
- Income phase-out (estimated income $61,375)
- −$0.00
| 10% bracket | $312.50 |
| 12% bracket | $375.00 |
| 22% bracket | $687.50 |
| 24% bracket | $750.00 |
| 32% bracket | $1,000.00 |
| 35% bracket | $1,093.75 |
| 37% bracket | $1,156.25 |
Estimate only. The deduction is claimed on your tax return; Social Security, Medicare and state taxes still apply to overtime pay.
What the deduction is
The deduction for qualified overtime compensation, often called no tax on overtime, came in with the 2025 tax law known as the One, Big, Beautiful Bill Act. It's a deduction from income on your federal tax return, available whether you itemize or take the standard deduction. It doesn't make overtime tax-free: overtime still counts as wages for withholding, Social Security, Medicare and federal unemployment tax.
You claim it on Schedule 1-A of Form 1040, in the part headed "No Tax on Overtime". To claim it, you (or your spouse, if the overtime is theirs) need a valid Social Security number, and married couples must file a joint return.
Who qualifies and what counts
Only overtime that the FLSA requires counts. That means you must be an FLSA overtime-eligible employee: covered by the federal law and not exempt from its overtime rule. Common exemptions include executive, administrative and professional employees, outside sales employees, certain computer-related jobs and some commissioned retail employees. If you're exempt, overtime you're paid under a contract or a state law doesn't qualify.
And only the premium counts: the "half" in time-and-a-half. The straight-time part of overtime pay is ordinary wages. In the IRS's own example, a worker paid $20.00 an hour who works 10 overtime hours and is paid double time receives $400.00 for those hours, but only $100.00 is qualified overtime compensation, because the FLSA requires just half the regular rate on top of straight time.
Overtime required only by a state law, such as California's daily overtime after 8 hours, or by a union contract, isn't qualified. The overtime calculator shows which hours are federal overtime and which come from state daily rules.
Estimating your qualified overtime
To estimate it yourself, take each workweek separately, count the hours over 40, and multiply them by half your regular rate for that week. Add up the weeks for the year. Your regular rate can include more than your base hourly pay, such as some bonuses, so the premium on your pay stub may be a little higher than half your base rate. From the 2026 tax year on, your Form W-2 shows your employer's figure, which is the one to use when you file.
The yearly limit and the income phase-out
The deduction is the smaller of your qualified overtime and $12,500 ($25,000 on a joint return). It then shrinks once your modified adjusted gross income (MAGI) passes $150,000 ($300,000 joint): by $100 for every full $1,000 above it. A single filer at the full limit loses the deduction entirely at $275,000 of MAGI.
Example: you earn $25.00 an hour and work 5 overtime hours a week for 50 weeks. Your qualified overtime is half your rate times 250 hours, $3,125. With income around $61,375, you're below the phase-out, so the deduction is $3,125.
A second example: at $60.00 an hour with 10 overtime hours a week for 50 weeks, the premium is $15,000, capped at $12,500. With MAGI of $175,000, the phase-out takes off $2,500, leaving $10,000.
On your paycheck versus at tax time
The deduction doesn't change how overtime is withheld by default. The IRS says employers may not reduce withholding for it unless you give them an updated Form W-4 that accounts for the deduction you expect. The 2026 Form W-4 lets you do that in Step 4(b), through its deductions worksheet, and the IRS Tax Withholding Estimator includes it too. The W-4 guide explains Step 4(b).
If you don't change your W-4, you'll typically see the benefit as a larger refund or a smaller amount owed when you file. From 2026, employers report qualified overtime on Form W-2 in box 12 with code TT, and you use that figure on Schedule 1-A.
To see what your regular paycheck looks like with overtime included, use the paycheck calculator and enter your overtime hours under More options. State income taxes follow each state's own rules.
How much tax it saves
A deduction lowers your taxable income, so the tax it saves depends on your tax rate. If your top federal bracket is the one shown in the calculator's table, the saving is roughly the deduction times that rate. If the deduction moves part of your income into a lower bracket, the saving is a little less. The calculator's savings table is a rough guide, not a tax return calculation.