No Tax on Overtime Calculator
The One, Big, Beautiful Bill Act lets non-exempt workers deduct the premium portion of overtime pay from federal taxes. Enter your hourly rate and weekly hours to see your savings.
- Regular pay (40 hrs × $25.00 × 52 wks)
- $52,000
- Overtime hours per week
- 10 hrs
- OT total pay (10 hrs × $37.50 × 52 wks)
- $19,500
- OT premium — the deductible "half" (10 hrs × $12.50 × 52 wks)
- $6,500
Only the premium portion of overtime pay (the "half" of time-and-a-half) qualifies for the deduction — not the base hourly rate during overtime hours.
annual savings ($107/month)
- Annual OT premium
- $6,500
- After $12,500 cap
- $6,500
- Deductible amount
- $6,500
9.65%
Before
7.86%
After OBBBA
- ✓You are a non-exempt employee under the Fair Labor Standards Act (FLSA) — eligible for overtime pay
- ✓Your overtime compensation is reported on your W-2 or 1099
- ✓Only the premium portion (the "half" of time-and-a-half) qualifies — not the base rate during OT hours
This deduction applies to federal income tax only — it does not reduce FICA taxes. Available starting tax year 2026.
How the OBBBA Overtime Deduction Works
Premium Only
Only the "half" of time-and-a-half is deductible. If you earn $30/hr OT on a $20/hr base, only the $10 premium qualifies.
Deduction Cap
$12,500 for single filers, $25,000 for married filing jointly. Phases out above $150K/$300K MAGI.
FLSA Non-Exempt
You must be legally entitled to overtime under the Fair Labor Standards Act. Exempt salaried workers don't qualify.
Tax years 2025–2028
Effective 2025 through 2028 — claimable on your 2025 return (per IRS Notice 2025-69), same window as the tip deduction. From 2026, W-2s separately report qualified OT pay.
Overtime deduction by scenario (2026, single filer)
Annual overtime premium (the deductible "half"), the deduction after the $12,500 single cap, and the federal income tax saved — computed by the same engine as the calculator above. Married-filing-jointly doubles the cap to $25,000.
| Pay scenario | Annual OT premium | Deduction (after cap) | Fed. tax saved |
|---|---|---|---|
| $25/hr, 50 hrs/wk | $6,500 | $6,500 | $1,280 |
| $30/hr, 50 hrs/wk | $7,800 | $7,800 | $1,716 |
| $40/hr, 55 hrs/wk | $15,600 | $12,500 | $2,914 |
| $55/hr, 60 hrs/wk | $28,600 | $7,500 | $1,800 |
Notice the deduction stops growing once the premium exceeds $12,500 — high-overtime workers hit the single cap. FICA (7.65%) still applies to all overtime; the deduction only reduces federal income tax.
Worked example
A nurse earns $40/hour and works 55 hours/week (15 overtime hours) for 52 weeks in 2026.
Overtime premium = 15 hrs × ($40 × 0.5) × 52 = $15,600 → capped at $12,500
The $12,500 deduction (she's under the $150k phase-out) saves about $2,750 in federal income tax at the 22% bracket. The other $3,100 of premium above the cap is not deductible, and Social Security + Medicare still apply to all of it.
Frequently asked questions
What part of overtime pay is deductible?
Only the premium portion — the "half" of time-and-a-half. If your regular rate is $20/hr, overtime pays $30/hr, and only the $10/hr premium is deductible.
What is the overtime deduction cap?
$12,500 per year for single filers, $25,000 for married filing jointly. It phases out above $150K (single) or $300K (MFJ) MAGI.
Do I need to be hourly to qualify?
You must be FLSA non-exempt — legally entitled to overtime pay for hours beyond 40/week. Exempt salaried employees don't qualify.
When does the overtime deduction start?
Tax years 2025 through 2028 — it's claimable on your 2025 return (filed in 2026), the same window as the tip deduction. IRS Notice 2025-69 covers the 2025 amount; W-2s separately report qualified OT pay from 2026.
Sources
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