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Tools · Federal income tax · 2025 and 2026

No tax on overtime calculator

Overtime is not tax free, but from 2025 through 2028 you can deduct the premium part of it: up to $12,500 a year ($25,000 joint), less as income passes $150,000 ($300,000 joint). Enter your overtime to estimate the deduction and the federal income tax it saves.

Your overtime, as you know it

Hours over 40 in a workweek. The premium is the extra 0.5 × your regular rate on each of those hours.

Your adjusted gross income for the year, overtime included. Most people's MAGI is the same figure as their AGI.

Your deduction 1

$5,000

Deduction for 2026, from $5,000 of qualified overtime premium.

How the deduction is worked out
Qualified overtime premium$25 × 0.5 × 8 hours × 50 weeks$5,000
Annual capUnder the $12,500 cap per return.Not reached
Income phase-outMAGI is not over $150,000, so no reduction.None
Deduction$5,000
Estimated federal income tax saved 5, 622% bracket, on taxable income of $58,900 before the deduction (MAGI less the $16,100 standard deduction, single).$1,100

What it does not change

  • Social Security and Medicare tax: overtime pay is still subject to employment taxes.2
  • Withholding from your paycheck, unless you give your employer a new Form W-4.2
  • State income tax: that depends on your state's law. California, for one, does not follow it.7

An estimate, not tax advice. It assumes the standard deduction and no credits or other deductions.

The rule

How the deduction works

The deduction is the part of your overtime pay that the Fair Labor Standards Act requires above your regular rate: with time and a half, the "half"1. It applies to tax years 2025 through 2028.

  1. Add up the qualified overtime premium for the year.
  2. Cap it at $12,500, or $25,000 on a joint return. The cap is per return, not per worker.
  3. If your modified adjusted gross income is over $150,000 ($300,000 joint), subtract $100 for each full $1,000 over. Schedule 1-A drops any part of a $1,0003.
  4. What is left is deducted from taxable income, whether or not you itemize2.

For 2025, employers did not have to report the amount, so IRS transition relief lets you work it out from pay stubs, for example one third of overtime paid at time and a half4. From 2026, only the amount your employer reports on Form W-2, box 12, code TT, can be deducted; if it is wrong, ask for a corrected W-2c2.

This page is an estimate, not tax advice. See the IRS summary of the deduction and the instructions for Schedule 1-A.

Worked example

Two examples

Under the cap

A single filer earning $25 an hour works 8 hours over 40 in 50 weeks of 2026. The premium is $25 × 0.5 × 8 × 50 = $5,000, under the $12,500 cap. With a MAGI of $75,000, no phase-out applies, so the deduction is $5,000.

Taxable income before the deduction is $75,000 less the $16,100 standard deduction = $58,900, in the 22% bracket. The deduction saves about $1,100 of federal income tax5.

In the phase-out

A single filer has $12,500 of qualified overtime and a MAGI of $160,500. That is $10,500 over $150,000: 10 full $1,000 steps × $100 = $1,000. The deduction is $12,500 − $1,000 = $11,500.

Eligibility

Who qualifies

Workers who are covered by the Fair Labor Standards Act and not exempt from its overtime rule, and who are paid FLSA overtime. Federal law requires time and a half for hours over 40 in a workweek (federal overtime rule):

Source: 29 U.S.C. § 207
Unless specifically exempted, employees covered by the Act must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The Act does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, as such.
Source
agency page
snapshot
September 26, 2026

Verified September 26, 2026

  • Exempt employees (for example most salaried executive, administrative and professional staff) get no FLSA overtime, so they have nothing to deduct.
  • Overtime paid under a state law, union contract or company policy counts only up to what the FLSA itself requires.
  • You need a Social Security number valid for employment on the return, and a joint return if you are married2.

To work out overtime pay itself, use the overtime calculator.

8 questions

Questions

Is overtime pay tax free now?

No. From 2025 through 2028 you can deduct the premium part of required overtime pay (the "half" of time and a half) from taxable income, up to $12,500 a year ($25,000 on a joint return). It lowers federal income tax only; the overtime is still paid and taxed as wages.

How do I calculate qualified overtime?

Multiply your overtime hours (hours over 40 in a workweek) by half your regular rate. If you only know your total overtime pay at time and a half, one third of it is the premium. From 2026, the amount that counts is the one your employer reports on Form W-2, box 12, code TT.

What is the income limit?

The deduction drops by $100 for each full $1,000 of modified adjusted gross income over $150,000 ($300,000 on a joint return). At the cap, it is gone at $275,000 ($550,000 joint).

Do I have to itemize to claim it?

No. You can claim it whether you itemize or take the standard deduction. It goes on Schedule 1-A (Form 1040).

Can I claim it if I'm married filing separately?

No. If you are married, you and your spouse must file a joint return to claim it. The worker who earned the overtime needs a Social Security number valid for employment, shown on the return.

Does it lower Social Security and Medicare tax?

No. Overtime pay is still wages for employment taxes, so Social Security and Medicare are withheld as before. Federal income tax withholding also stays the same unless you give your employer a new Form W-4.

Does state-law overtime or double time count?

Only the premium the federal Fair Labor Standards Act requires counts. Overtime paid only because of a state law (such as daily overtime), a union contract or company policy does not, and with double time only the half-time FLSA premium counts.

Does my state give the same deduction?

It depends on your state's tax law. The deduction comes after federal adjusted gross income, so it does not lower that figure. California, for one, does not conform to the 2025 federal law that created it.

Sources

Where the figures come from

Every tax figure on this page, with the text it was read from.

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