No Tax on Overtime Calculator
- Deductible
It lowers federal income tax only. Social Security, Medicare and most state taxes still apply to your overtime.
How the No Tax on Overtime calculation works
How much of your overtime pay you can deduct under the 2025–2028 No Tax on Overtime rule, after the cap and income phase-out, and the federal tax it saves.
Only the overtime premium counts
The deduction covers the extra half in time and a half that federal law (FLSA) requires. At $25 an hour, each overtime hour pays $37.50, and $12.50 of that qualifies. If your employer pays double time, still only the FLSA half counts.
It is capped at $12,500 a year
Up to $12,500 per return, or $25,000 if you're married filing jointly (Schedule 1-A, line 15). Married filing separately can't claim it.
It shrinks above $150,000 of income
For every full $1,000 of MAGI over $150,000 ($300,000 joint), the deduction drops by $100 (lines 17–20). A single filer with $175,000 MAGI loses $2,500.
The saving is the deduction × your tax bracket
It is a deduction, not a refund of the tax withheld. In the 22% bracket, a $7,500 deduction saves about $1,650 of federal income tax. You can claim it whether or not you itemize.
Worked example. At $25 an hour with 6 overtime hours a week for 40 weeks, the qualified premium is ½ × $25 × 240 h = $3,000. Under the cap and with $85,000 MAGI, all $3,000 is deductible, saving about $660 in the 22% bracket.
No Tax on Overtime FAQ
Is overtime now tax free?
Not exactly. For 2025 to 2028 you can deduct the qualified overtime premium from your taxable income, up to $12,500 ($25,000 joint). Overtime is still wages: federal income tax is still withheld from it, and Social Security and Medicare tax still apply.
How does no tax on overtime work?
You still get paid and taxed on overtime as usual. When you file your return, you deduct the qualified part (the extra half of time and a half) on Schedule 1-A. The deduction is capped at $12,500 ($25,000 joint), shrinks above $150,000 of MAGI ($300,000 joint), and is available whether or not you itemize. Example: $3,000 of qualified overtime in the 22% bracket saves about $660 of federal income tax.
What counts as qualified overtime?
Only the premium federal law requires: the half in time and a half for hours over 40 a week. Extra overtime that only state law or your contract requires (such as daily overtime) doesn't count, and neither do workers who are exempt from FLSA overtime.
Where do I find my qualified overtime amount?
For 2026 and later, your employer reports it on Form W-2, box 12, code TT. That is the full premium paid; the cap and phase-out are applied on your return. For 2025, employers didn't have to report it separately, so you could work it out with the methods in Notice 2025-69.
What if my W-2 has no code TT amount, or it is too low?
From 2026 you can only deduct qualified overtime that your employer reports on Form W-2, box 12, code TT. If it is missing or too low, ask your employer for a corrected Form W-2c. A substitute Form 4852 doesn't count.
Is there an income limit for no tax on overtime?
Yes. The deduction starts to shrink when MAGI is over $150,000 ($300,000 joint). Subtract that threshold from your MAGI, divide by $1,000, drop any fraction, and multiply by $100. That amount comes off your deduction. With the full $12,500 it reaches zero at $275,000 MAGI for a single filer; with the full $25,000 on a joint return, at $550,000.
Can my employer withhold less tax now?
Only if you give them an updated Form W-4 that accounts for the deduction you expect. The 2026 Form W-4 covers it in step 4(b).
Who can't claim the overtime deduction?
Workers who are exempt from FLSA overtime (for example most salaried executive, administrative and professional staff), married people filing separately, and anyone without a Social Security number valid for employment. An employee who owns at least 20% of the business and helps manage it generally doesn't qualify either.
Sources: IRS: Schedule 1-A (Form 1040) 2025, Part III · IRS: What to know about the No Tax on Overtime deduction · IRS: FS-2026-13, questions and answers on qualified overtime compensation (Aug 2026) · IRS: Notice 2025-69