No tax on overtime calculator
Estimate the federal deduction for qualified overtime pay under the 2025 tax law: the premium part of your overtime, the yearly cap and the income phase-out.
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No tax on overtime deduction
Enter your overtime and your income to see the deduction.
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How to use the no tax on overtime calculator
- Enter your overtime. Your regular rate and overtime hours, your total time-and-a-half pay, or the premium amount if your W-2 or employer gives it.
- Enter your modified AGI. For most people that's the adjusted gross income on Form 1040, line 11b, including the overtime.
- Pick your filing status and year. Joint returns get a $25,000 cap and a $300,000 phase-out start; everyone else $12,500 and $150,000.
- Read the deduction. The tax saved is a rough figure: the deduction times the bracket you choose.
How the overtime deduction works
Deduction = the smaller of your qualified overtime and the cap, minus $100 for each full $1,000 of MAGI over $150,000 ($300,000 joint).
Qualified overtime compensation is the part of FLSA-required overtime pay that is above your regular rate: the half in time and a half. The One Big Beautiful Bill Act added it as section 225 of the tax code for tax years 2025 through 2028. The cap is $12,500, or $25,000 on a joint return, and it isn't adjusted for inflation.
Schedule 1-A works out the phase-out by dividing your income over the threshold by $1,000, dropping any fraction and multiplying by $100. A full $12,500 deduction is gone at $275,000 of MAGI, or $550,000 for a full $25,000 joint deduction.
Examples
| Situation | Premium | Deduction |
|---|---|---|
| $20 an hour, 300 overtime hours, single, $85,000 MAGI | $3,000 | $3,000 |
| Same overtime, single, $160,000 MAGI | $3,000 | $2,000 |
| $40 an hour, 800 overtime hours, single, $120,000 MAGI | $16,000 | $12,500 |
| $16,000 premium, married filing jointly, $200,000 MAGI | $16,000 | $16,000 |
| Any overtime, married filing separately | Any | $0 |
Common mistakes
- Deducting the whole overtime paycheck. Only the premium counts, usually a third of time-and-a-half pay.
- Counting state-only overtime, such as California hours over 8 in a day in a week under 40 hours.
- Expecting a bigger paycheck. Withholding and FICA don't change; the saving comes when you file.
- Forgetting that it ends. Without new law, tax year 2028 is the last one.
This is an estimate, not tax advice. Rules as of October 2026. Sources: Internal Revenue Code section 225, added by Public Law 119-21; IRS, One Big Beautiful Bill Act tax deductions for working Americans and seniors; 2025 Schedule 1-A (Form 1040), Part III; IRS Notice 2025-69; 2026 General Instructions for Forms W-2 and W-3 (box 12, code TT).
Frequently asked questions
Is overtime now tax-free?
Not all of it. From 2025 to 2028 you can deduct the overtime premium, the extra half in time and a half, up to $12,500 a year ($25,000 on a joint return). Your regular rate for those hours is still taxed, and Social Security and Medicare are still withheld on all of it.
How much of my overtime pay counts?
One third of time-and-a-half pay. At $20 an hour, an overtime hour pays $30: $20 is your regular rate and $10 is the premium. Only the $10 counts. If you're paid double time, only half your regular rate per FLSA overtime hour still counts.
Does California daily overtime count?
Only hours that are also overtime under the federal Fair Labor Standards Act, meaning hours over 40 in a workweek. Overtime that only state law, a union contract or company policy requires doesn't qualify.
Do I have to itemize to get it?
No. It's claimed on Schedule 1-A with Form 1040, whether you take the standard deduction or itemize. It doesn't lower your adjusted gross income.
Where do I find my qualified overtime?
From tax year 2026 employers report it on Form W-2, box 12, code TT. For 2025 the IRS gave transition relief: employers didn't have to report it separately, so you can work it out from pay stubs or a statement from your employer.
Who can't take the deduction?
Married people filing separately, anyone without a valid Social Security number on the return, and workers who are exempt from FLSA overtime, such as most salaried managers. Above $150,000 of income ($300,000 joint) it shrinks until it's gone.