Overtime tax deduction
No Tax on Overtime Calculator
Work out the federal no-tax-on-overtime deduction for 2025 or 2026 from your overtime hours, pay stub, or W-2, with the $12,500 cap, the income phase-out, and the federal income tax it saves.
Maintained by Austin Witherow · Updated
Overtime deduction
$3,125.00
- Good to know
- Estimate. For 2026, you can deduct only the qualified overtime your employer reports on Form W-2, box 12, code TT.
- Federal income tax saved
- About $375 less federal income tax for 2026
- Qualified overtime
- 5 h over 40 × 50 weeks × $25.00 × ½ = $3,125.00
- Cap and phase-out
- Under the $12,500 cap. Income is not over $150,000, so there is no phase-out.
- Tax worked out
- Taxable income $48,900 (estimated as income minus the 2026 standard deduction for single ($16,100)) becomes $45,775. Tax $5,620.00 becomes $5,245.00 (12% bracket).
Formula
Qualified overtime = Hours over 40 × Regular rate × ½ (or time-and-a-half pay ÷ 3, double-time pay ÷ 4)Deduction = min(Qualified overtime, $12,500 or $25,000) − $100 × whole thousands of income over $150,000 or $300,000Tax saved = Tax(Taxable income) − Tax(Taxable income − Deduction)
Key caveat
It assumes your overtime is required by the Fair Labor Standards Act. Exempt employees (many salaried, executive, professional, and outside sales jobs) and true independent contractors (not FLSA employees) do not get qualified overtime even if they are paid for extra hours.
What this calculator is for
The no tax on overtime deduction lets workers who are owed overtime under federal law deduct the extra half of their time-and-a-half pay from their taxable income, for tax years 2025 through 2028. It is not a tax-free paycheck: overtime is still withheld from and still owes Social Security and Medicare. The saving comes when you file.
Enter your overtime as hours and a rate, as a year-to-date total from your pay stub, or as the amount your employer reported. The calculator finds the qualified part, applies the $12,500 cap ($25,000 on a joint return) and the income phase-out, and works out how much federal income tax the deduction saves at your bracket.
How it works
Only the overtime premium counts. For an hour over 40 paid at time and a half, your pay is the regular rate plus a half; only the half is qualified overtime. At $20 an hour, overtime pays $30 and $10 of it is deductible.
From a year-to-date total: time-and-a-half overtime pay ÷ 3 is the premium; double-time pay ÷ 4 is the part the federal rule requires. These are the IRS methods for 2025. For 2026 on, they are only an estimate and a check: you can deduct only the amount your employer reports on Form W-2, box 12, code TT.
Overtime pay beyond what federal law requires does not count: for most workers, daily overtime in a week of 40 hours or less, and anything above time and a half. Weekend or holiday premiums count only to the extent your employer uses them to meet the federal overtime requirement.
The deduction is the smaller of your qualified overtime and $12,500 ($25,000 married filing jointly).
If your income is over $150,000 ($300,000 joint), the deduction drops $100 for every full $1,000 over. Partial thousands are dropped, as on Schedule 1-A.
The tax saved is your federal income tax on taxable income, minus the tax on taxable income less the deduction, using that year's IRS rate tables.
Which part of overtime is deductible
Top: at a $20 regular rate, an overtime hour at time and a half pays $30, and only the $10 premium is qualified overtime. With double time ($40), still only $10 counts, because federal law requires only time and a half (IRS FS-2026-13, Q16). Bottom: the largest deduction for a single filer by income. It is $12,500 up to $150,000 of modified AGI, then $100 less for each full $1,000 over, reaching $0 at $275,000 (Schedule 1-A, lines 15 to 21). Married filing jointly: $25,000 to $300,000, $0 at $550,000.
Quick calculator insights
Do you qualify?
- Owed overtime under the FLSA
- Not exempt from federal overtime. State-law or union overtime alone does not count.
- Hours over 40 in a workweek
- For most workers, that is what federal overtime covers.
- Valid Social Security number
- Valid for work, issued before the return's due date (including extensions), and on the return.
- Not married filing separately
- Married couples must file jointly.
- On your W-2 (2026 on)
- Only the amount in box 12, code TT can be deducted.
What the deduction does not do
- Withholding
- Overtime is still withheld from like other pay unless you file a new Form W-4 (2026 version, step 4(b)).
- Social Security and Medicare
- Still taken from all overtime pay. The deduction is for federal income tax only.
- State income tax
- Depends on your state; check your state's rules.
- Your AGI
- The deduction comes after AGI (Form 1040 line 13b), so it does not lower AGI-based limits.
Cap and phase-out by filing status
The same for 2025 through 2028 (26 U.S.C. 225(b)). The deduction is gone when income is high enough to cut the full cap.
| Filing status | Cap | Phase-out starts | Full cap gone at |
|---|---|---|---|
| Single, head of household, surviving spouse | $12,500 | $150,000 | $275,000 |
| Married filing jointly | $25,000 | $300,000 | $550,000 |
| Married filing separately | Not allowed | — | — |
Largest deduction by income (single, $12,500 or more of qualified overtime)
$100 off for each full $1,000 over $150,000.
| Income (AGI) | Largest deduction |
|---|---|
| $150,000 or less | $12,500 |
| $160,000 | $11,500 |
| $175,000 | $10,000 |
| $190,500 | $8,500 |
| $200,999 | $7,500 |
| $225,000 | $5,000 |
| $250,000 | $2,500 |
| $275,000 | $0 |
Standard deduction used for the estimate
Used when you leave taxable income blank. People 65 or older, blind, or claimed as a dependent have different amounts.
| Filing status | 2025 | 2026 |
|---|---|---|
| Single, married filing separately | $15,750 | $16,100 |
| Married filing jointly, surviving spouse | $31,500 | $32,200 |
| Head of household | $23,625 | $24,150 |
2026 federal income tax brackets (taxable income)
From Rev. Proc. 2025-32. The rate applies to the part of taxable income in each band.
| Rate | Single | Married filing jointly | Head of household |
|---|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 | Up to $17,700 |
| 12% | Up to $50,400 | Up to $100,800 | Up to $67,450 |
| 22% | Up to $105,700 | Up to $211,400 | Up to $105,700 |
| 24% | Up to $201,775 | Up to $403,550 | Up to $201,750 |
| 32% | Up to $256,225 | Up to $512,450 | Up to $256,200 |
| 35% | Up to $640,600 | Up to $768,700 | Up to $640,600 |
| 37% | Over $640,600 | Over $768,700 | Over $640,600 |
How to use this calculator
- 01Pick the tax year and your filing status.
- 02Choose how you know your overtime: hours and rate, a year-to-date overtime total, or the amount on your W-2.
- 03Enter your adjusted gross income for the year, including the overtime (plus any foreign or territory income you excluded).
- 04Optional: enter your taxable income if you itemize or have other deductions.
- 05Read the deduction, the tax it saves, and the math behind each step.
Inputs explained
- Tax year
- 2025 (filed in 2026) or 2026 (filed in 2027). The deduction rules are the same, but from 2026 only the amount on your W-2 (box 12, code TT) can be deducted, and the brackets and standard deduction differ.
- Filing status
- Married filing jointly gets the $25,000 cap and $300,000 threshold. Married filing separately cannot take the deduction.
- Regular hourly rate
- Your FLSA regular rate: hourly pay plus pay like shift differentials and non-discretionary bonuses, per hour worked. Not the overtime rate. The overtime pay calculator, linked below, works it out when you have a bonus, two pay rates or a salary.
- Overtime hours a week
- Work out the hours over 40 in each workweek on its own, then take the average of those numbers over the weeks you had overtime. Never average total hours across weeks: 50 hours and 30 hours is 10 overtime hours, not 0.
- Overtime pay for the year
- The full overtime line on your last pay stub (regular rate plus premium), for hours over 40 in a workweek only. Leave out daily overtime hours beyond each week's hours over 40 (all of them in weeks of 40 hours or less). Pick time and a half or double time to match how you were paid.
- Qualified overtime reported
- The amount your employer reported as qualified overtime: the half-time premium only, not total overtime pay. If your 2025 stub shows a separate premium paid at double time, enter half of it. From 2026 it is on Form W-2 in box 12 with code TT.
- Income for the year (AGI)
- Adjusted gross income from Form 1040, including overtime, plus any foreign or U.S. territory income you excluded (that sum is the MAGI the phase-out uses). It sets the phase-out and, if you leave taxable income blank, the estimate of taxable income, so enter taxable income too if you added excluded income.
- Taxable income before this deduction
- Optional. Use it if you itemize or have other deductions; otherwise the standard deduction is used.
Outputs explained
- Overtime deduction
- The amount you can deduct, after the cap and the phase-out. For 2026 it is an estimate unless you enter the amount from your W-2.
- Good to know
- What the result depends on for the year and method you chose.
- Federal income tax saved
- How much lower your federal income tax is with the deduction. It shows up as a bigger refund or a smaller amount owed.
- Qualified overtime
- The premium part of your overtime, and how it was worked out.
- Cap and phase-out
- Whether the $12,500 or $25,000 cap or the income phase-out cut the deduction.
- Tax worked out
- Taxable income and tax with and without the deduction, and the bracket.
- Schedule 1-A, Part III (2025)
- For 2025, the numbers for lines 14c to 21 of Schedule 1-A.
Worked examples
Five hours of overtime most weeks
- 2026, single. $25 an hour, 5 hours over 40 a week for 50 weeks. Income $65,000.
- Qualified overtime: 5 × 50 × $25 × ½ = $3,125. Under the cap; income is under $150,000.
- Taxable income: $65,000 − $16,100 standard deduction = $48,900, in the 12% bracket. The deduction lowers it to $45,775.
- Tax saved: $3,125 × 12% = $375.
From a pay stub total
- The last pay stub of the year shows $9,000 of overtime pay at time and a half, all for hours over 40 in a workweek.
- Each overtime dollar is 1 part regular pay and ½ part premium, so the premium is $9,000 ÷ 3 = $3,000.
- That $3,000 is the qualified overtime.
Double time: only the half counts
- $20 an hour, 50 hours in a week, overtime paid at double time: 10 hours × $40 = $400 of overtime pay.
- Federal law requires only time and a half: $200 of straight time plus a $100 premium.
- Qualified overtime is $100, which is $400 ÷ 4. The scenario is the IRS's own (FS-2026-13, Q16); ÷ 4 is the IRS method for double-time totals (Notice 2025-69).
Daily overtime that is not federal overtime
- Four 10-hour days in a week, 40 hours. A state or contract rule pays 8 hours of daily overtime at time and a half.
- Federal law requires overtime only over 40 hours a week, so none of it is qualified overtime.
- Deduction: $0 for that week.
Over the cap
- Single, $45 an hour, 12 hours over 40 a week for 50 weeks: 12 × 50 × $45 × ½ = $13,500 of qualified overtime.
- The cap is $12,500, so the deduction is $12,500 if income is under $150,000.
In the phase-out
- Single, $5,000 of qualified overtime, income $162,400.
- $12,400 over $150,000 is 12 whole thousands (the $400 is dropped). 12 × $100 = $1,200.
- Deduction: $5,000 − $1,200 = $3,800.
Crossing a bracket
- 2026, single, taxable income $52,000, deduction $4,000: taxable income falls to $48,000.
- $1,600 of it was in the 22% bracket (over $50,400) and $2,400 in the 12% bracket.
- Tax saved: $1,600 × 22% + $2,400 × 12% = $352 + $288 = $640, not $4,000 × 22% = $880.
When to use it
- Estimating how much bigger your refund will be because of overtime you worked this year.
- Checking the qualified overtime on your W-2 against your pay stubs.
- Turning a year-to-date overtime total from a pay stub into the deductible premium.
- Deciding whether to change your Form W-4 to have less tax withheld.
- Seeing whether a raise or a spouse's income puts you into the phase-out.
Tips
- For 2026 and later, only the amount your employer reports in W-2 box 12, code TT can be deducted. If it looks wrong, ask for a corrected W-2c.
- Keep your last pay stub of the year; it shows year-to-date overtime.
- If you were paid double time, use the double-time option, or you will overstate the deduction. If your stub has both a time-and-a-half and a double-time total, take a third of the first and a quarter of the second, add them, and enter the sum with the reported option, so the cap and income limit apply once.
- Married? You have to file jointly. Both spouses' qualified overtime counts, up to $25,000 together.
- You do not need to itemize; the deduction is taken on top of the standard deduction.
Limitations
- It assumes your overtime is required by the Fair Labor Standards Act. Exempt employees (many salaried, executive, professional, and outside sales jobs) and true independent contractors (not FLSA employees) do not get qualified overtime even if they are paid for extra hours.
- The hours option uses one regular rate and an average number of overtime hours. Bonuses and differentials raise the regular rate; the W-2 amount is more exact.
- Tax saved uses the IRS rate formula on ordinary income. The tax on your return may come from the IRS Tax Table instead, which can differ from this by a few dollars. Capital gains, credits, and other taxes are not included.
- If you leave taxable income blank, the estimate uses only the standard deduction. Itemized deductions, other Schedule 1-A deductions (tips, car loan interest, the senior deduction), and the extra standard deduction for age 65 or blindness change it.
- Special overtime systems (hospital 8/80 schedules, police and fire work periods, public-sector comp time, and federal employees under OPM rules, who also have a daily 8-hour threshold) follow other rules; use the amount your employer reports.
- It covers tax years 2025 and 2026. The deduction runs through 2028, but 2027 and 2028 brackets have not been published.
Methodology & assumptions
- Qualified overtime follows 26 U.S.C. 225(c) and IRS FS-2026-13 (Q12, Q16): hours over 40 in a workweek × one-half × the regular rate; double time counts only for the half the FLSA requires.
- The year-to-date options use Notice 2025-69 methods (B) and (D): one-third of a time-and-a-half total and one-fourth of a double-time total. Those methods are for tax year 2025; from 2026 the deduction is limited to the amount on Form W-2, box 12, code TT (FS-2026-13, Q20), so for 2026 the calculator's result is an estimate.
- The cap and phase-out follow 26 U.S.C. 225(b) and Schedule 1-A lines 15 to 21: income over the threshold is divided by $1,000 and rounded down before multiplying by $100. Income is treated as modified AGI, which equals AGI unless you exclude foreign or territory income.
- Tax is calculated from the rate tables in Rev. Proc. 2024-40 (2025) and Rev. Proc. 2025-32 (2026). Standard deductions are from the 2025 Form 1040 and Rev. Proc. 2025-32.
- Married filing separately gets no deduction (26 U.S.C. 225(e)). A qualifying surviving spouse uses the joint brackets but the $12,500 cap and $150,000 threshold, because it is not a joint return.
- Amounts are worked out to the cent; the tax saved is shown to the dollar.
Sources
Last reviewed 2026-11-06
- Public Law 119-21, section 70202: No tax on overtime (adds 26 U.S.C. 225) (GovInfo)
A deduction for qualified overtime compensation reported on Form W-2 (or on Form 1099 for a worker who is an FLSA employee but treated as a contractor for tax), up to $12,500 ($25,000 on a joint return), reduced by $100 for each $1,000 of modified AGI over $150,000 ($300,000 joint). Qualified overtime is FLSA-required overtime in excess of the regular rate. A valid Social Security number is required, married taxpayers must file jointly, it is allowed whether or not you itemize, and it ends after 2028. It applies to tax years beginning after December 31, 2024.
- IRS Fact Sheet FS-2026-13: Questions and answers about the deduction for qualified overtime compensation (August 2026)
Q12: qualified overtime for a workweek is hours over 40 × one-half × the FLSA regular rate. Q16: of double time, only the amount needed to meet the FLSA is qualified (the 'half'). Q1 and Q8: overtime is still subject to withholding, Social Security, and Medicare. Q6, Q10, Q20: from 2026, employers report it on Form W-2 box 12, code TT, and only the amount reported there can be deducted.
- IRS Notice 2025-69: Guidance for individuals who received qualified tips or qualified overtime compensation in 2025
For 2025 only, when the W-2 does not show the amount: use a separately stated premium; one-third of a combined time-and-a-half overtime total; one-fourth of a combined double-time total; or another reasonable method based on the regular rate and hours over 40.
- Schedule 1-A (Form 1040) 2025: Additional Deductions, Part III (IRS)
Line 15 caps qualified overtime at $12,500 ($25,000 married filing jointly). Lines 17 to 20: income over $150,000 ($300,000) is divided by $1,000, rounded down to a whole number, and multiplied by $100. Line 21 is the deduction.
- Form 1040 (2025): U.S. Individual Income Tax Return (IRS)
2025 standard deduction: $15,750 single or married filing separately, $31,500 married filing jointly or qualifying surviving spouse, $23,625 head of household. Schedule 1-A deductions go on line 13b, after adjusted gross income.
- Rev. Proc. 2024-40, section 2.01: 2025 tax rate tables (IRS)
The 10% to 37% brackets for 2025 by filing status.
- Rev. Proc. 2025-32, sections 4.01 and 4.14: 2026 tax rate tables and standard deduction (IRS)
The 10% to 37% brackets for 2026; standard deduction $16,100 single or married filing separately, $32,200 married filing jointly or surviving spouse, $24,150 head of household.
- 29 U.S. Code § 207(a)(1): Maximum hours (GovInfo, U.S. Code 2023 edition)
Covered employees must be paid at least one and one-half times the regular rate for hours over 40 in a workweek.
FAQs
Is overtime tax free now?+
No. Overtime is still taxed and withheld from your paycheck, and Social Security and Medicare still apply. For 2025 through 2028 you can deduct the premium part of federally required overtime, up to $12,500 ($25,000 joint), when you file your federal return.
How much will no tax on overtime save me?+
Your deduction times your tax bracket, roughly. $3,125 of qualified overtime in the 12% bracket saves $375; the same amount in the 22% bracket saves about $688. If the deduction crosses into a lower bracket, the saving is a bit less. The calculator works it out from the rate tables.
What part of my overtime is deductible?+
Only the premium above your regular rate that federal law requires: the half in time and a half. At $20 an hour, an overtime hour pays $30, and $10 is deductible. With double time, still only the $10.
How do I calculate my qualified overtime from my pay stub?+
Take the year-to-date overtime pay for hours over 40 in a workweek (leave out daily overtime hours beyond each week's hours over 40, which is all of them in weeks of 40 hours or less). If it was all paid at time and a half, divide by 3. If it was paid at double time, divide by 4. If it mixes both, divide each part, add them, and enter the sum with the reported option. For 2026 and later, your W-2 should show the amount in box 12 with code TT.
Does California daily overtime or double time count?+
Only to the extent federal law requires overtime: hours over 40 in a workweek, at the half-time premium. Daily overtime in a week of 40 hours or less, and the extra half of double time, do not count (FS-2026-13, Q16).
Does it apply to 2025 taxes?+
Yes. It applies to tax years 2025 through 2028. For 2025, employers did not have to report the amount, so you could figure it from pay stubs using the IRS methods. From 2026, only the amount on your W-2 (box 12, code TT) counts.
Where is qualified overtime on my W-2?+
From 2026, in box 12 with code TT. For 2025, employers did not have to report it; some put it in box 14 or on a separate statement. A worker treated as a contractor for tax but an employee under the FLSA gets it on Form 1099-NEC or 1099-MISC instead.
Do I have to itemize to get it?+
No. It is taken in addition to the standard deduction, on Schedule 1-A, and flows to Form 1040 line 13b.
Who does not qualify?+
Workers who are exempt from FLSA overtime (for example, many salaried executive, administrative, and professional employees, and outside sales), true independent contractors who are not FLSA employees, married people filing separately, and anyone without a valid Social Security number. Overtime paid only because of a state law or union contract does not count either.
What is the income limit?+
The deduction shrinks by $100 for each full $1,000 of modified AGI over $150,000 ($300,000 married filing jointly). With $12,500 of qualified overtime, it is gone at $275,000 single and at $550,000 joint for $25,000.
Does it reduce Social Security and Medicare tax?+
No. It is a federal income tax deduction. Overtime wages are still subject to Social Security and Medicare.
Why is so much tax still taken out of my overtime check?+
Employers must still withhold on overtime. To have less withheld, give your employer a 2026 Form W-4 with your expected deduction in step 4(b), or use the IRS Tax Withholding Estimator.
Is the deduction permanent?+
No. It ends after tax year 2028 unless Congress extends it.
Can married couples both claim it?+
Yes, on a joint return. Both spouses' qualified overtime is added, up to $25,000, and the phase-out starts at $300,000 of joint income.
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Hours Calculator
A time card calculator: enter clock-in and clock-out times and unpaid breaks for a shift, a week, or two weeks, and get total hours, decimal hours, overtime, and pay.
This calculator estimates a federal income tax deduction from the numbers you enter. It does not decide whether you are owed overtime under the FLSA or whether your employer reported it correctly, and it does not include state taxes or credits. For your return, use the amounts on your W-2 and the IRS instructions, or ask a tax professional.