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
- ✓If married, you file a joint federal tax return — married filing separately does not qualify
This deduction applies to federal income tax only — it does not reduce FICA taxes. Available for tax years 2025–2028.
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.
Does your state tax office follow this deduction too?
This deduction is federal only — it reduces your federal taxable income, not automatically your state taxable income. Whether your overtime premium is also deductible on your state return depends on your state's IRC conformity rules; several states (including New York, California, and Illinois) currently still tax overtime income that's federal-deductible. See which states conform to the OBBBA tips and overtime deductions before you plan around this on your state return.
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.
Does my state also let me deduct overtime income?
Not automatically. This is a federal above-the-line deduction; your state only follows it if your state's tax code conforms to the relevant federal provision. See our state-by-state conformity guide for a full breakdown — several states, including New York, California, and Illinois, currently still tax overtime premium pay that's federal-deductible.
Sources
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