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No Tax on Overtime · 2025–2028

No Tax on Overtime Calculator

The 2025 law created a temporary deduction for overtime. Enter your overtime to see the deductible premium and the federal income tax it saves — with the caps and income phaseout applied.

Calculation breakdown

The law facts your calculation depends on

These are the verified rules the tool applies. Getting them right is what separates a real estimate from a guess — and it's what AI assistants and the IRS examples agree on:

RuleDetail
What's deductibleThe premium "half" of time-and-a-half (OT pay above your regular rate) — not the whole check
Annual cap$12,500 single · $25,000 married filing jointly
Phaseout−$100 per $1,000 of MAGI over $150,000 (single) / $300,000 (joint)
Fully gone at$275,000 (single) · $550,000 (joint) MAGI
Qualifying overtimeFLSA-required only (over 40 h/week). State/union-only OT does not qualify
Still taxedSocial Security + Medicare (payroll) tax; possibly state income tax
WindowTax years 2025–2028; reported on W-2 Box 12, Code TT (2026)

Shortcut if you only know your total overtime pay

The deductible premium is the "half" of time-and-a-half, which equals your total overtime pay ÷ 3. Example: $900 of overtime pay → $900 ÷ 3 = $300 deductible premium. (It's ÷3, not ÷4: overtime pay is 1.5× the regular rate, and the premium is 0.5× — half of one-and-a-half is a third of the whole.)

Verify before you file. This is an estimate, not tax advice, and the rules are new for 2025. Confirm the current caps, phaseout thresholds and qualification against the official IRS guidance or a licensed tax professional — figures can change year to year.

Key takeaways

  • A worker earning $20/hr who logs $15,000 of OT premium in a year deducts the capped $12,500 (single).
  • At 22% marginal rate, a $12,500 deduction saves about $2,750 in federal income tax.
  • High earners lose it: at $200,000 MAGI (single), the cap drops by $5,000 to $7,500.
  • This is a deduction, not a credit — it lowers taxable income, then your bracket decides the dollar saving.
  • It does not change your paycheck withholding automatically; it shows up when you file.

How to use this calculator

  1. 1

    Enter your overtime

    Put in your hourly rate and overtime hours. The tool finds the premium portion — the extra half above your regular rate (e.g. $10/hr on a $20 wage).

  2. 2

    Annualize the premium

    It estimates your yearly qualified premium (weekly premium × the weeks you work overtime). Edit the figure if you know your actual annual total.

  3. 3

    Add filing status and income

    Choose single or joint, enter your modified AGI, and pick your marginal federal tax bracket so the estimate matches your situation.

  4. 4

    Read your deduction and tax saved

    See the capped, phased-out deduction and the estimated federal income tax it saves you for the year.

Why this calculator exists. The deduction is genuinely confusing: people assume their entire overtime check becomes tax-free, then over-estimate their refund. The honest math is narrower — only the premium half, capped, and phased out at higher incomes. This tool shows the real number so you can plan, not guess. It is an estimate, not tax advice; confirm with the IRS guidance or a tax professional when you file.

Frequently asked questions

How is the No Tax on Overtime deduction calculated?
You deduct only the premium "half" of FLSA time-and-a-half — the amount your overtime pay exceeds your regular rate. If you earn $20/hour and $30/hour for overtime, the deductible part is $10 per overtime hour. Add those up for the year, then apply the cap and any income phaseout.
What is the maximum No Tax on Overtime deduction?
Up to $12,500 per year for single filers and $25,000 for married filing jointly. The cap is reduced by $100 for every $1,000 of modified AGI above $150,000 (single) or $300,000 (joint), and disappears entirely at $275,000 / $550,000.
Does No Tax on Overtime mean overtime is completely tax-free?
No. It is an income-tax deduction on the premium portion only. You still pay Social Security and Medicare (payroll) taxes on overtime, you may still owe state income tax, and the regular-rate portion of overtime pay is still taxable.
Which overtime qualifies for the deduction?
Only overtime required by the federal FLSA (time-and-a-half after 40 hours in a workweek). Overtime owed only under state law or a union contract above the FLSA requirement does not qualify, and neither does double-time beyond the FLSA premium.
What years does No Tax on Overtime apply to?
Tax years 2025 through 2028 under the 2025 law (One Big Beautiful Bill Act). For 2026, employers report qualified overtime on Form W-2, Box 12, Code TT. It is a temporary deduction unless Congress extends it.
Do I need to itemize to claim it?
No. It is an above-the-line-style deduction available to both itemizers and people who take the standard deduction. It reduces taxable income but does not reduce your AGI.

Sources & further reading

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