Free No Tax on Overtime Calculator

How the no tax on overtime deduction works

The 2025 tax law known as the One Big Beautiful Bill Act created a federal deduction for qualified overtime compensation for tax years 2025 through 2028. Qualified overtime is the part of your overtime pay that is above your regular rate and required by the Fair Labor Standards Act (FLSA). In practice, it’s the “half” in time and a half: if you earn $20 an hour and get $30 for an overtime hour, $10 of it counts.

• It’s a deduction, not tax-free pay. Your overtime is still in your W-2 wages; the deduction lowers your taxable income when you file.
• You don’t need to itemize. It’s available with the standard deduction or itemized deductions.
• It’s capped and income-limited: up to $12,500 a year ($25,000 on a joint return), reduced once your modified adjusted gross income passes $150,000 ($300,000 joint).
• It’s federal income tax only. Social Security, Medicare and state income taxes work as before.

The IRS explains the rules in its questions and answers on the deduction (FS-2026-13).

Worked example: $25 an hour, 5 overtime hours a week

Say you earn $25 an hour and work 45 hours a week for 50 weeks of the year. That’s 250 overtime hours.

1. Overtime pay: 250 hours × $37.50 = $9,375.
2. Straight-time part: 250 × $25 = $6,250. It stays taxable like any other pay.
3. Qualified overtime (the premium): 250 × $12.50 = $3,125. That’s your deduction, because it’s under the $12,500 cap and your income is under the phase-out.
4. Tax saved: as a single filer in 2026 with $65,000 of adjusted gross income, your taxable income is $65,000 − the $16,100 standard deduction = $48,900, in the 12% bracket. The deduction saves about $3,125 × 12% = $375. In the 22% bracket it would save about $688.

Not sure how many overtime hours you work? The overtime calculator splits a week into regular and overtime hours and shows your weekly premium.

Who qualifies for no tax on overtime (and who doesn’t)

You qualify if you’re a non-exempt employee under the FLSA and your employer pays you overtime because federal law requires it — typically hourly workers paid time and a half after 40 hours a week. You also need a Social Security number valid for employment, and if you’re married you must file a joint return.

• Exempt employees don’t qualify, even if a state law, union contract or employer policy pays them overtime. Many salaried executive, administrative and professional employees are exempt.
• Independent contractors generally don’t qualify, because FLSA overtime is for employees. The rare exception is a worker who is an employee under the FLSA but paid on a Form 1099.
• Double time counts only in part. In the IRS’s example, an employee earning $20 an hour paid double time for 10 hours gets $400, but only $100 — the half-time premium — is qualified.
• Overtime the FLSA doesn’t require is out: daily overtime under state law, overtime after 35 hours, weekend or holiday premiums, and contract overtime beyond what federal law requires.
• Married filing separately can’t claim it at all.

The cap and the income phase-out

The deduction is the smaller of your qualified overtime and the cap — $12,500 per return, or $25,000 if you’re married filing jointly (for both spouses together). Then it drops by $100 for each full $1,000 of modified adjusted gross income (MAGI) above $150,000, or $300,000 on a joint return. Schedule 1-A rounds partial thousands down. For most people, MAGI is simply their adjusted gross income.

The table assumes your qualified overtime is at least the cap. With less, the same reduction comes off your actual amount: $5,000 of qualified overtime at $160,000 of MAGI leaves a $4,000 deduction. A qualifying surviving spouse uses the single figures.

How to claim it: W-2 code TT and Schedule 1-A

1. Find the amount. From 2026, employers must report qualified overtime on Form W-2 in box 12, code TT. Only that amount counts; if it’s wrong, ask your employer for a corrected W-2 (Form W-2c).
2. Fill in Schedule 1-A (Form 1040), Part III. It applies the cap and the phase-out, and the result is added to your other deductions on Form 1040.
3. For 2025 only, employers didn’t have to report the amount separately, so the IRS allows a reasonable estimate from pay stubs. If you were paid time and a half and your records show total overtime pay, you can use one-third of it — the method behind this calculator’s “Total overtime pay” option (IRS Notice 2025-69).

Your paychecks don’t change on their own: overtime is still subject to income tax withholding. To get the benefit during the year, give your employer a new Form W-4 — the 2026 form accounts for the deduction in step 4(b) — or use the IRS Tax Withholding Estimator.

Social Security, Medicare and state income tax

The deduction cuts federal income tax only. Social Security and Medicare taxes still apply to all your overtime pay, as the IRS confirms in Publication 15-T. State income tax depends on where you live: whether your state offers a similar break is up to your state’s own law, so check with your state’s tax agency.

Is overtime taxed?

Yes. Overtime is taxable wages, taxed at your normal federal rates — not a special higher rate. It can look higher on a big paycheck because withholding treats each paycheck as if you earned that much all year; any extra comes back when you file. “No tax on overtime” doesn’t make overtime tax-free: in the example above, $6,250 of the $9,375 is still taxed as regular income, and payroll taxes apply to all of it.

If overtime is how you make ends meet, a higher hourly rate may do more than any deduction. Compare what a raise is worth with the pay raise calculator, convert offers with the salary to hourly calculator, and let Automated Job Search apply to better-paying jobs for you.

This calculator and guide give estimates, not tax or legal advice. Your actual deduction depends on your W-2, your full return and IRS guidance, which may change. Sources: IRS FS-2026-13, Schedule 1-A (Form 1040), Notice 2025-69, Publication 15-T and Rev. Proc. 2025-32 (2026 brackets and standard deduction).