How to use it
- Enter your hourly rate, average overtime hours per week and how many weeks you work overtime.
- Choose your filing status and add any other income (a spouse's wages, side work) so the phase-out is right.
- Read the deduction and the federal income tax it saves. Social Security, Medicare and most state taxes still apply.
The formula
Qualified overtime = overtime hours × rate × 0.5 (only the "half" in time-and-a-half)
Deduction limit = $12,500 ($25,000 joint) − 10% of MAGI over $150,000 ($300,000 joint)
Tax saved = tax on taxable income − tax on (taxable income − deduction)
Example: $25/hour with 5 hours of overtime a week for 50 weeks: overtime pay is $9,375, but only the premium half, $3,125, is deductible. A single filer in the 12% bracket saves about $375 in federal income tax.
No tax on overtime: the rules
| Tax years | 2025 through 2028 |
|---|---|
| What's deductible | The premium part of FLSA-required overtime (the "half" in time-and-a-half) |
| Maximum | $12,500 a year; $25,000 married filing jointly |
| Phase-out | Cut by $100 per $1,000 of MAGI over $150,000 ($300,000 joint) |
| Itemizing | Not required; you can take it with the standard deduction ($16,100 single in 2026) |
| Requirements | Valid SSN; married couples must file jointly |
| Reported on | Form W-2, box 12, code TT (from 2026); Schedule 1-A |
| Not affected | Social Security and Medicare tax; most state income taxes |
Good to know
- Only overtime required by the FLSA counts. Overtime paid because of state law (like California's daily overtime), a union contract or company policy doesn't qualify unless it's also FLSA overtime.
- If you're paid double time, still only half your regular rate per overtime hour qualifies.
- From 2026, employers report qualified overtime on Form W-2 in box 12 with code TT. For 2025 you could use pay stubs or other records.
- You need a valid Social Security number, and married couples must file jointly to claim it. You can claim it whether or not you itemize.
Questions
Is overtime really tax-free now?
Not entirely. You can deduct the overtime premium (the extra half-time) from federal taxable income, up to $12,500 a year ($25,000 joint). The full overtime pay is still subject to Social Security, Medicare and usually state income tax.
Which years does the no tax on overtime deduction cover?
Tax years 2025 through 2028, under the One Big Beautiful Bill Act signed in July 2025. Unless Congress extends it, it ends after 2028.
Does the deduction lower my paycheck withholding?
Not automatically. Employers still withhold as usual. You can update Form W-4 to account for the deduction, or get the benefit as a refund when you file.
Who doesn't qualify?
Exempt (salaried) employees who aren't owed FLSA overtime, people without a valid SSN, married people filing separately, and anyone whose income fully phases the deduction out: above $275,000 MAGI for single filers or $550,000 for joint filers.