No Tax on Overtime Calculator (2025–2028)
The "No Tax on Overtime" deduction lets FLSA overtime-eligible workers deduct the premium half of time-and-a-half pay from federal taxable income — up to $12,500 per return ($25,000 joint) for 2025–2028, per the IRS. For example, a $25/hour worker with 300 overtime hours can deduct $3,750.
How it works
Deduction = min(0.5 × rate × OT hours, $12,500 or $25,000 joint) − 10% × max(0, MAGI − $150,000 or $300,000)
- Only the premium portion of FLSA time-and-a-half qualifies: for each overtime hour paid at 1.5×, the 0.5× 'half' is qualified overtime compensation (IRS FS-2026-01). Even if your employer pays double time, only the 0.5× FLSA-required portion counts.
- The deduction is capped at $12,500 per return ($25,000 for joint filers) and phases out by $100 for every $1,000 of modified AGI above $150,000 ($300,000 joint) — fully gone at $275,000 ($550,000).
- Your federal savings ≈ deduction × your marginal tax bracket. FICA (7.65%) still applies to all overtime, and most states still tax it. The deduction applies for tax years 2025–2028 and is claimed on Schedule 1-A.
Worked example
A nurse earning $45/hour with 500 FLSA overtime hours and $160,000 MAGI (single): qualified premium = 0.5 × 45 × 500 = $11,250; under the $12,500 cap; phase-out = 10% × ($160,000 − $150,000) = $1,000; final deduction $10,250. At the 24% bracket, that saves about $2,460 in federal tax.
How much can the overtime deduction save? (2026 examples, single filer)
| Scenario | Qualified premium (0.5×) | Final deduction | Est. federal savings |
|---|---|---|---|
| $25/hr, 300 OT hrs, $80K income | $3,750 | $3,750 | ≈ $825 (22%) |
| $35/hr, 400 OT hrs, $120K income | $7,000 | $7,000 | ≈ $1,540 (22%) |
| $45/hr, 500 OT hrs, $160K income | $11,250 | $10,250 (phase-out −$1,000) | ≈ $2,460 (24%) |
| $60/hr, 600 OT hrs, $280K income | $18,000 | $0 (fully phased out) | $0 |
Common misconception: the deduction does not make overtime "tax-free." According to the IRS, Social Security and Medicare taxes still apply to every dollar of overtime, and only the half-time premium — not the full 1.5× payment — qualifies. Salaried employees who are exempt from FLSA overtime rules get no deduction, regardless of extra hours worked.
See how overtime fits into your whole paycheck with our state paycheck calculators, check what OASDI (Social Security) tax still takes from overtime, or convert pay with the salary to hourly calculator.
Data & sources
- IRS FS-2026-01 — Q&A on the qualified overtime compensation deduction
- IRS — What to know about the No Tax on Overtime deduction
- IRS Notice 2025-69 (calculation guidance)
Last updated:
Frequently asked questions
Is overtime really tax-free now?
No. The OBBBA created a federal income tax deduction — not an exemption. Only the half-time premium portion of FLSA overtime qualifies, capped at $12,500 per return ($25,000 joint), and FICA taxes (7.65%) still apply to all overtime pay. Most states also still tax overtime normally.
Who qualifies for the overtime deduction?
Workers who are covered by and not exempt from the FLSA overtime rules — generally hourly, non-exempt employees paid time-and-a-half for hours over 40 per week. Exempt salaried employees get no deduction even if they work extra hours. A Social Security number valid for employment is required, and married taxpayers must file jointly.
How much of my overtime pay is deductible?
Only the premium: for time-and-a-half pay, the "half" portion. If you earn $30/hour and work an overtime hour at $45, the deductible part is $15. If your employer pays double time, only the FLSA-required $15 still qualifies.
What is the income limit for the overtime deduction?
The deduction shrinks by $100 for every $1,000 of modified AGI above $150,000 (single) or $300,000 (joint), per the IRS. With the maximum deduction it disappears entirely at $275,000 single / $550,000 joint.
Which years does the deduction apply to?
Tax years 2025 through 2028. For 2025, employers weren't required to report qualified overtime separately, so filers may need to calculate it using IRS Notice 2025-69; from 2026, W-2s report qualified overtime in a dedicated box.
Do I need to itemize to claim it?
No. The qualified overtime deduction is available whether you take the standard deduction or itemize. It is claimed on Schedule 1-A of Form 1040.
Does my state also exempt overtime from tax?
Usually not automatically. This is a federal deduction; state income tax treatment varies by state, and most states continue taxing overtime unless they pass their own conforming law. Check your state's revenue department.