No Tax on Overtime Calculator: Your Exact 2025–2026 Deduction
Quick Answer: The OBBBA overtime deduction allows eligible employees to deduct the FLSA half-time premium portion of their overtime pay from their federal income tax. The deduction is capped at $12,500 for Single/HoH filers and $25,000 for Married Filing Jointly, and is available for tax years 2025 through 2028.
How Much Can You Save?
MFJ couples can deduct up to $25,000 of qualifying FLSA overtime premiums.
Is Only Half-time Tax-free?
Only the 0.5x premium portion is tax-free. Your base rate is still taxed.
Are There Phase-out Limits?
MAGI above $150k (Single) or $300k (MFJ) starts reducing your allowable deduction.
Does FICA Still Apply?
This deduction only applies to federal income tax, not Social Security or Medicare.
- Total OT Pay$9,000
- Deduction Cap$12,500
Estimates only — not tax advice. Federal income tax only; FICA (Social Security/Medicare) and state taxes remain applicable on all overtime.
How the No Tax on Overtime Deduction Works
The No Tax on Overtime deduction is often misunderstood as "tax-free overtime". In reality, the deduction strictly applies to the half-time premium mandated by the Fair Labor Standards Act (FLSA), and it only reduces your federal income tax. You still owe FICA (Social Security and Medicare) and applicable state taxes.
Let's look at a practical example: Imagine your regular hourly rate is $20. When you work overtime, you are paid time-and-a-half, meaning your overtime rate is $30 per hour. Under the OBBBA rules, only the $10 premium (the "half" in time-and-a-half) qualifies for the federal deduction. The base $20 portion of your overtime hour is still fully taxed at the federal level.
- Base pay (federal income tax applies)
- 0.5× premium (deductible — federal-tax-free)
How can you quickly estimate your deductible premium?
The deduction created by the One Big Beautiful Bill Act (often abbreviated OB3) covers only the half-time premium, so two fast estimates work for most people: for time-and-a-half pay, your deductible premium is total overtime pay ÷ 3; for double-time pay, it is total overtime pay ÷ 4. Example: $13,333 of time-and-a-half overtime equals about $4,444 deductible (then capped at $12,500 single / $25,000 MFJ). You claim the amount on Schedule 1-A, line 13b.
What counts as qualified overtime?
The IRS is extremely specific about what qualifies. Your overtime must be mandated by the federal FLSA, which generally requires premium pay for hours worked over 40 in a workweek.
| Type of Pay | Qualifies? |
|---|---|
| FLSA premium for hours over 40/week | Yes |
| Double-time premium above 1.5× | No |
| California daily OT (state-mandated) | No |
| Contractual or union OT above FLSA | No |
| Bonuses and commissions | No |
How does the Income Phase-Out work?
High earners face a phase-out of the overtime deduction. If your Modified Adjusted Gross Income (MAGI) exceeds $150,000 for single filers or $300,000 for Married Filing Jointly, your maximum allowable deduction shrinks by $100 for every $1,000 above the threshold.
What is your remaining deduction?
Formula: -$100 deduction for every $1,000 of MAGI above the threshold.
| MAGI Level | Remaining Deduction |
|---|---|
| $150,000 | $12,500 |
| $160,000 | $11,500 |
| $175,000 | $10,000 |
| $200,000 | $7,500 |
| $225,000 | $5,000 |
| $250,000 | $2,500 |
| $275,000 | $0 |
Allowable Overtime Deduction by Income Level
The table below illustrates how the maximum deduction of $12,500 (Single/HoH) or $25,000 (MFJ) phases down to $0 as Modified Adjusted Gross Income (MAGI) increases. The formula reduces the cap by $100 for every $1,000 of excess MAGI.
| Single / HoH MAGI | Max Deduction | Married Joint MAGI | Max Deduction |
|---|---|---|---|
| $150,000 or less | $12,500 | $300,000 or less | $25,000 |
| $160,000 | $11,500 | $350,000 | $20,000 |
| $175,000 | $10,000 | $400,000 | $15,000 |
| $200,000 | $7,500 | $450,000 | $10,000 |
| $225,000 | $5,000 | $500,000 | $5,000 |
| $250,000 | $2,500 | $550,000 or more | $0 |
| $275,000 or more | $0 | - | - |
Why hasn't your paycheck changed?
A common source of confusion is why take-home pay hasn't visibly increased on recent paychecks despite the new law. The OBBBA does not alter payroll withholding requirements for employers. Your paycheck will reflect the same tax withholdings as before.
Instead, the benefit is realized when you file your tax return. The deduction lowers your overall federal income tax liability, resulting in a larger refund. If you want to see the money sooner, you have the option to manually adjust your W-4 withholdings, though you should consult a tax professional before doing so to avoid underpayment penalties.
Where to Find Your Overtime on Your W-2
Your overtime premium is tracked separately for tax purposes. Depending on the tax year, your employer reports this differently. Toggle below to see where to find this information on your W-2 form.
Where is it on your W-2?
Transition Relief Reporting
For the 2025 tax year, the IRS provided transition relief. Employers are not required to report overtime separately on your W-2.
- Look at Box 14 — some employers may optionally report it here as "FLSA OT".
- If not reported in Box 14, you must manually calculate your qualified overtime using your final pay stub of the year.
- Keep your pay stubs as documentation in case of an IRS audit.
Can 1099 Workers claim the Overtime Deduction?
Many online sources incorrectly state that independent contractors are entirely ineligible for the overtime deduction. The IRS clarified that qualified overtime can be "reported on Form 1099... or directly by the individual."
However, the critical eligibility criterion is that the overtime must be mandated by the FLSA for non-exempt workers. Most genuine independent contractors do not meet the FLSA definition of an employee and thus do not legally earn FLSA overtime. But misclassified employees or statutory employees who receive a 1099 may still qualify if their work legally entitles them to FLSA protections. Always verify your FLSA status if you are a 1099 worker seeking to claim this deduction.
How to claim it on Schedule 1-A Part III?
Claiming your overtime deduction is a straightforward process using the new IRS Schedule 1-A attached to your Form 1040:
- Calculate your MAGI in Part I to determine if you are subject to the phase-out.
- Enter your qualified overtime premium in Part III.
- Sum your total deductions in Part VI and transfer that figure to Form 1040, line 13b.
For a detailed walkthrough, see our Schedule 1-A Guide.
Does Your State Tax Your Overtime?
The No Tax on Overtime deduction is a federal provision. The vast majority of states do not conform to this deduction, meaning your overtime premium remains fully taxable at the state level.
| State | State Tax Treatment |
|---|---|
| Texas | No state income tax |
| Florida | No state income tax |
| California | Overtime is fully taxed by the state |
| New York | Overtime is fully taxed by the state |
| Pennsylvania | Overtime is fully taxed by the state |
Can you stack Tips and Overtime on the same return?
If you work in an eligible tipped occupation and also earn qualified overtime, you can stack both deductions. They have separate caps. For example, a single server who earns $8,000 in qualified tips and $4,000 in overtime premiums can deduct the full $12,000, as neither amount exceeds its respective $25,000 (tips) and $12,500 (overtime) cap. Use our No Tax on Tips Calculator to estimate your combined savings.