No Tax on Overtime Calculator

How the "no tax on overtime" deduction works

The One Big Beautiful Bill Act (signed July 2025) added a temporary federal deduction, at Internal Revenue Code §225, for qualified overtime compensation. It is claimed on Schedule 1-A after your AGI is figured, so it does not reduce your AGI, though you can still take it whether or not you itemize, on top of your standard deduction.

Only the premium qualifies. Federal law (the Fair Labor Standards Act) requires "time-and-a-half" for overtime — 1.5× your regular rate. The deduction covers just the extra 0.5× — the "half." If you earn $20/hour normally and $30/hour on overtime, the $10/hour difference is the premium that counts, not the full $30.

Annual caps. Up to $12,500 of premium if you're single or head of household, or $25,000 if married filing jointly, per year, for tax years 2025 through 2028.

Income phase-out. The deduction shrinks by $100 for every $1,000 your modified adjusted gross income (MAGI) is over $150,000 (single) or $300,000 (joint), reaching zero at $275,000 / $550,000.

It's a deduction, not a refund. It lowers your taxable income, so the dollar you save is roughly the deduction times your marginal tax rate. And it's income-tax only: Social Security and Medicare are still withheld on overtime, and withholding on your paycheck doesn't change — you claim the deduction when you file.

Earn tips too? There's a matching no tax on tips calculator. 65 or older? The same law also added a $6,000 senior bonus deduction — the one marketed as "no tax on Social Security." Itemizing in a high-tax state? It also raised the SALT deduction cap to $40,000. Bought a new car? You can also deduct up to $10,000 of the loan interest — see the car loan interest deduction calculator.

A worked example: Marcus, a warehouse worker

Marcus is single and earned about $50,000 last year. He put in 300 hours of overtime at a regular rate of $20 an hour. His overtime was paid at time-and-a-half ($30 an hour), but only the premium — the extra $10 an hour — qualifies. Step by step:

• Overtime premium: ½ × $20 × 300 hours = $3,000. The other $6,000 of overtime pay is just his regular rate for those hours, so it doesn't count.
• Deductible amount: $3,000 is below the $12,500 single cap, and his $50,000 income is well under the $150,000 phase-out line, so the whole $3,000 is deductible.
• Federal tax saved: that $3,000 sits in his 12% bracket, so it cuts his federal income tax by about $360 ($3,000 × 12%).
• What doesn't change: Social Security and Medicare were still withheld on all of his overtime, and his paychecks during the year were the same — the $360 arrives as a bigger refund (or smaller balance due) when he files.

If Marcus were in the 22% bracket, the same $3,000 premium would save about $660 — a deduction is worth your marginal rate, so higher earners save more per dollar.

Who can claim it

You need a Social Security number valid for employment, and if you're married you must file jointly (married filing separately is not eligible). It's available to both employees (overtime reported on your W-2) and, in limited cases, others whose FLSA-required overtime is reported on a payee statement. For tax year 2025, employers weren't required to break out qualified overtime separately, so you may need to total it from your pay stubs; from 2026 it appears in a dedicated box on the W-2 — Box 12 code TT, explained in the W-2 box decoder.

Does your state tax overtime?

This deduction is federal. Whether it also lowers your state income tax depends on your state — many states do not conform, some conform only from 2026, and nine states have no wage income tax at all. Pick your state above to see its treatment, or open your state's paycheck calculator for the detail.

Common questions

Is overtime completely tax-free now? No. Only the FLSA premium is deductible, only up to the annual cap, only for federal income tax, and only for 2025–2028. Social Security and Medicare still apply, and your state may still tax it.

What if I don't know my exact premium? Use the estimator — enter your regular hourly rate and total overtime hours and it computes the premium (½ × rate × hours).

What is MAGI? Modified adjusted gross income is your adjusted gross income plus a few add-backs, mainly foreign-income exclusions — for almost everyone it's the same as your AGI. It's the income figure the phase-out above uses.

What is FICA? FICA is the Social Security (6.2%) and Medicare (1.45%) payroll tax withheld from your pay. It's separate from federal income tax, and this deduction doesn't reduce it — FICA still applies to your overtime.

What is filing status? It's the category you file under — single, married filing jointly, or head of household here. It sets your cap and phase-out thresholds. Married workers must file jointly to claim this deduction; married filing separately can't.

Is anything saved or uploaded? No. The tool is fully client-side — your numbers never leave your browser.

Sources: IRS, Questions and answers about the deduction for qualified overtime compensation; IRS Notice 2025-69.