Last updated: March 20, 2026
No Tax on Overtime Calculator
The One Big Beautiful Bill Act (OBBBA) lets eligible workers deduct up to $12,500 (single) or $25,000 (married filing jointly) of overtime premium pay from federal taxable income for 2025–2028. Enter your figures above to calculate your deduction instantly. Everything below explains exactly how it works.
What Is the No Tax on Overtime Deduction? (OBBBA Explained)
The OBBBA, signed into law July 4, 2025 as U.S. Public Law 119-21, created a new above-the-line federal income tax deduction for “qualified overtime compensation.” It covers the overtime premium — specifically the extra 0.5× portion of time-and-a-half pay — not your full overtime wages.
In plain terms: if you earn $20/hr and are paid $30/hr for overtime hours, only the $10 premium per hour is potentially deductible, not the full $30. FICA taxes (Social Security and Medicare) still apply to all overtime earnings. The deduction is available for federal tax years 2025 through 2028 only.
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OBBBA Definition The no-tax-on-overtime deduction (OBBBA, P.L. 119-21) allows non-exempt workers to deduct qualified overtime premium pay — up to $12,500 single or $25,000 joint — from federal taxable income. It does NOT eliminate FICA taxes on overtime. Applies to tax years 2025–2028. |
Do You Qualify? Eligibility Rules Under the FLSA
To qualify for the deduction, your overtime must be paid under the Fair Labor Standards Act (FLSA). Use our overtime pay calculator to verify whether your employer is paying you correctly before claiming the deduction.
Who qualifies — non-exempt hourly and salaried workers
You qualify if all of the following are true:
- You are a W-2 employee (not self-employed or a 1099 contractor).
- You are classified as non-exempt under the FLSA — meaning you earn less than $43,888/year ($844/week) or your job duties do not meet an executive, administrative, or professional exemption test.
- You received overtime pay at a rate of at least 1.5× your regular rate for hours worked over 40 in a workweek.
- Your MAGI is below $150,000 (single) or $300,000 (married filing jointly).
California double time does not qualify — see our double time pay calculator for details.
Who does NOT qualify — exempt employees and double-time
You do not qualify if any of the following apply:
- You are classified as exempt under the FLSA (most salaried managers, executives, and professionals earning above $43,888/year).
- You are self-employed or an independent contractor — the deduction is for W-2 employees only.
- Your overtime was paid voluntarily by your employer above the FLSA minimum (e.g., discretionary bonus overtime). Only FLSA-mandated overtime qualifies.
- Double-time pay: The deduction covers only the FLSA-required premium. California double-time pay above 1.5× does not qualify under the current IRS guidance (IRS Notice 2025-69).
See our salaried overtime calculator to check your exempt status.
How to Calculate Your Overtime Tax Deduction — Step by Step
Step 1 — Find your overtime premium (the “half” portion only)
Your deductible overtime premium is not your total overtime wages. It is only the extra 0.5× above your regular rate.
Formula: OT Premium = Regular Rate × 0.5 × OT Hours
Example: Regular rate $20/hr, 10 overtime hours → $20 × 0.5 × 10 = $100 overtime premium for that week. Multiply across your full year’s qualifying overtime hours to get your annual deductible amount.
Step 2 — Apply the deduction cap ($12,500 / $25,000)
Your deduction is capped regardless of how much overtime premium you earned:
| Filing Status | Maximum Deduction |
| Single / Married Filing Separately / Head of Household | $12,500 |
| Married Filing Jointly | $25,000 |
If your total annual overtime premium is below the cap, you deduct the actual premium. If it exceeds the cap, you deduct only the cap amount.
Step 3 — Check the MAGI phase-out ($150K / $300K MFJ)
The deduction phases out ratably once your Modified Adjusted Gross Income (MAGI) exceeds the threshold for your filing status. MAGI is your Adjusted Gross Income (AGI) before this deduction, plus certain add-backs such as foreign income exclusions and IRA deductions.
Step 4 — Apply to your federal taxable income
The deduction is above-the-line, meaning you subtract it from gross income before calculating AGI. It is available whether you itemize or take the standard deduction. See the annual income calculator to model how the deduction affects your effective tax rate across different earnings scenarios.
3 IRS Worked Examples — Time-and-a-Half, Double Time & Comp Time
The following examples are drawn from IRS Tax Tip 2026-06 (January 26, 2026) and IRS Notice 2025-69. Numbers have been adapted for clarity.
Example 1 — Hourly worker paid time-and-a-half ($15,000 OT)
| Example 1 — Single filer, hourly, time-and-a-half |
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Regular rate: $25.00/hr | Filing status: Single Overtime hours worked in 2025: 400 hours Total overtime wages received: $25 × 1.5 × 400 = $15,000 Overtime premium (0.5× portion only): $25 × 0.5 × 400 = $5,000 Cap check: $5,000 < $12,500 cap → full $5,000 is deductibleMAGI: $72,000 — below $150,000 threshold, no phase-out |
| Federal taxable income reduced by $5,000. Estimated federal tax saving at 22% bracket: $1,100. |
Example 2 — Worker paid double time ($20,000 OT)
| Example 2 — Married filing jointly, double-time scenario |
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Regular rate: $30.00/hr | Filing status: Married Filing Jointly Overtime hours worked: 500 hours (California, >12 hrs/day, paid 2.0×) Total overtime wages received: $30 × 2.0 × 500 = $30,000 Deductible premium: FLSA requires only 1.5×, so deductible portion = $30 × 0.5 × 500 = $7,500 Cap check: $7,500 < $25,000 MFJ cap → full $7,500 is deductibleMAGI: $145,000 — below $300,000 MFJ threshold, no phase-out |
| Federal taxable income reduced by $7,500. Estimated saving at 22% bracket: $1,650. |
Example 3 — High earner with MAGI phase-out applied
| Example 3 — Single filer, MAGI phase-out scenario |
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Regular rate: $55.00/hr | Filing status: Single Overtime premium earned: $12,500 (at cap) MAGI: $175,000 (exceeds $150,000 threshold by $25,000) Phase-out calculation: Per IRS Notice 2025-69, deduction reduced ratably Excess MAGI over threshold: $175,000 − $150,000 = $25,000 Phase-out fraction applied to $12,500 cap (see MAGI table below) Reduced deduction: approximately $6,250 (50% phased out at this income level) |
| Federal taxable income reduced by ~$6,250 instead of the full $12,500 cap. |
2025 vs 2026 — How to Find Your Overtime on Your W-2
One of the most common questions is where to find qualifying overtime on your tax return. The answer is different for 2025 and 2026 — and getting this right is essential before you claim the deduction.
Tax year 2025 — self-reporting with pay stubs (IRS transition relief)
For tax year 2025, the IRS issued transition relief under IRS Notice 2025-69 (November 21, 2025) because employers were not required to separately report overtime premiums on W-2s issued in January 2026. This means:
- Your W-2 Box 1 (Wages) includes all your earnings — regular pay and overtime — combined.
- You must calculate your qualifying overtime premium yourself using pay stubs, payroll records, or your employer’s pay summary.
- Keep all supporting documentation in case of IRS inquiry. The IRS has indicated it may issue a worksheet or Schedule form for this calculation.
- For workers with consistent shift patterns, the calculation is straightforward — especially if you track shifts using a tool like our 12-hour shift pay calculator.
Tax year 2026 — W-2 Box 14 “FLSA OT Prem” required
Starting with W-2s issued in January 2027 (for tax year 2026), employers are required by IRS guidance to separately report the qualifying FLSA overtime premium in Box 14 with the label “FLSA OT Prem.” This removes the need for manual calculation and self-documentation. The Box 14 figure is the exact amount you enter as your deduction, subject to the cap and MAGI phase-out.
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Key Takeaway 2025: No Box 14 — calculate your premium from pay stubs and keep records. 2026 onward: Box 14 of your W-2 will show ‘FLSA OT Prem’ — use that number directly in your deduction calculation. |
MAGI Phase-Out Table — Is Your Deduction Reduced?
The table below shows how the phase-out works across different MAGI levels for single filers (threshold: $150,000). For MFJ filers, substitute $300,000 as the threshold.
| MAGI (Single Filer) | Excess Over Threshold | Approx. Deduction Remaining |
| Below $150,000 | — | Full deduction (up to $12,500 cap) |
| $160,000 | $10,000 excess | Reduced — check IRS worksheet |
| $175,000 | $25,000 excess | Approximately 50% of cap |
| $200,000 | $50,000 excess | Further reduced — see IRS Notice 2025-69 |
| Above phase-out ceiling | Fully phased out | $0 deduction |
The IRS has not published a fixed phase-out ceiling. Taxpayers with MAGI above $150,000 (single) or $300,000 (MFJ) should use the IRS worksheet in their 2025 or 2026 Form 1040 instructions, or consult a tax professional for precise calculation.
Does the Deduction Apply to State Taxes Too?
As of March 2026, the no-tax-on-overtime deduction is a federal income tax deduction only. It does not automatically reduce state taxable income. State tax treatment depends entirely on whether your state conforms to the federal OBBBA changes:
- States with rolling conformity to federal law (e.g., many smaller states) may automatically adopt the deduction.
- States with fixed-date conformity (e.g., states that conformed to federal law as of a specific prior date) will NOT automatically apply the deduction.
- States with their own independent income tax codes — including California, New York, and several others — have not yet enacted conforming legislation as of March 2026.
Check your state revenue department website or consult a tax professional to determine whether the overtime deduction applies to your state return.
Frequently Asked Questions — No Tax on Overtime 2026
What is the no tax on overtime deduction under the OBBBA?
A: The OBBBA (P.L. 119-21, effective July 4, 2025) created a new above-the-line federal income tax deduction for qualified overtime compensation. Eligible non-exempt W-2 workers can deduct the FLSA overtime premium — the extra 0.5× portion of time-and-a-half pay — up to $12,500 if single or $25,000 if married filing jointly. The deduction applies to tax years 2025 through 2028.
How much overtime pay can I deduct on my 2025 federal tax return?
A: You can deduct your actual overtime premium (regular rate × 0.5 × overtime hours) up to the applicable cap: $12,500 for single filers and $25,000 for married filing jointly. If your MAGI exceeds $150,000 (single) or $300,000 (MFJ), the deduction phases out ratably. You cannot deduct more than you actually earned in overtime premiums, even if you are below the cap.
Does the no tax on overtime deduction reduce my FICA taxes too?
A: No. FICA taxes — Social Security (6.2%) and Medicare (1.45%) — still apply to all overtime earnings, including the premium portion. The OBBBA deduction only reduces your federal income tax liability. It does not affect FICA withholding on your paycheck or your self-employment tax if applicable.
How do I calculate the overtime premium if my employer paid double time?
A: For federal deduction purposes, only the FLSA-required premium qualifies. Since the FLSA minimum for overtime is 1.5×, the deductible premium is 0.5× your regular rate × overtime hours — even if you were actually paid 2.0×. The additional 0.5× above the FLSA minimum (the difference between double time and time-and-a-half) does not qualify under IRS Notice 2025-69.
Where do I find my qualified overtime compensation on my W-2 for 2025?
A: For tax year 2025, most W-2s do not separately list the overtime premium. Under IRS Notice 2025-69 transition relief, you must calculate the premium yourself using your pay stubs or employer payroll records and retain documentation. Starting with tax year 2026 W-2s, employers must report the FLSA overtime premium separately in Box 14, labeled ‘FLSA OT Prem.’
Does the overtime tax deduction apply to salaried employees?
A: Yes, if you are a salaried non-exempt employee. Salaried workers who earn less than $43,888 per year ($844/week) and whose duties do not qualify for an FLSA white-collar exemption are entitled to overtime and may claim the deduction. However, most salaried managers and professionals classified as exempt under the FLSA do not qualify because they are not entitled to FLSA overtime pay in the first place.
Does the no tax on overtime deduction apply to state income taxes?
A: Only if your state has enacted conforming legislation. The OBBBA is a federal law, and the deduction reduces federal taxable income only. As of March 2026, states including California and New York have not passed conforming laws. States with rolling federal conformity may automatically adopt the deduction. Check your state revenue agency or consult a tax professional for your specific state.
When does the no tax on overtime deduction expire?
A: The deduction is currently scheduled to expire after tax year 2028. It applies to qualified overtime compensation earned in tax years 2025, 2026, 2027, and 2028. Unless Congress acts to extend the provision, overtime premiums earned on or after January 1, 2029 will no longer qualify for the federal income tax deduction under the OBBBA.
About This Calculator
The IntelCalculator No Tax on Overtime Calculator is based on the One Big Beautiful Bill Act (OBBBA), U.S. Public Law 119-21, enacted July 4, 2025. Deduction rules reference IRS Notice 2025-69 (Nov. 21, 2025) and IRS Tax Tip 2026-06 (Jan. 26, 2026). Applicable for federal tax years 2025–2028 only. The deduction covers only the FLSA overtime premium (the “half” portion of time-and-a-half pay) — not the full overtime amount. FICA taxes (Social Security and Medicare) still apply to all overtime earnings. State tax treatment varies. This tool is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional for personalised guidance.
Sources: IRS.gov (Notice 2025-69), DOL.gov, P.L. 119-21
No Tax on Overtime Calculator 2026
Estimate your overtime take-home pay under proposed tax exemption rules
Enter your wage details to calculate regular and overtime earnings
Estimated savings if overtime pay is fully exempt from federal income tax
Hover bars to see exact amounts. Shows where your earnings go per year.
Full breakdown of federal, state, and FICA taxes on regular vs overtime pay
| Tax Component | On Regular Pay | On OT Pay | Total |
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Your overtime earnings are taxed at a higher marginal rate, meaning each extra dollar worked costs more in taxes.
Shows how much income falls in each bracket — overtime often pushes income into higher brackets.
Side-by-side: current tax law vs proposed no-tax-on-overtime policy
Monthly take-home comparison across all 12 months at current OT hours.
Drag slider above to explore. Chart shows annual savings vs OT hours worked per week.
Detailed pay stub showing every line item for your current pay period
| Description | Current Law | No OT Tax |
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Full-year earnings and savings forecast with monthly chart
Cumulative take-home pay through the year under both scenarios.
What your tax savings could grow to if invested over time
Projected growth if you invest annual overtime tax savings at given return rate.
Explore different OT hours and income combinations to find your optimal strategy
| OT Hours/Week | OT Gross/Year | OT Tax Saved | Take-Home Gain |
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Working just 5 additional overtime hours per week can significantly boost your annual take-home, especially under an OT tax exemption.
Key rules that determine whether your overtime pay qualifies under current and proposed law
Transparent methodology — see exactly how every number is computed
Professional strategies to maximize your overtime take-home under both current and proposed law
This calculator is for informational purposes only and does not constitute financial advice. Consult a licensed financial advisor before making investment decisions. Tax law is subject to change; figures shown are estimates based on 2025-2026 federal brackets.