Overtime Tax Calculator

What the "no tax on overtime" law does

The 2025 federal tax law (often called the One Big Beautiful Bill Act) created a new deduction for qualified overtime compensation. Key points:

• Only the premium counts. At time and a half, you earn your normal rate plus half again. Only that extra half is deductible. The normal-rate part is taxed as usual.
• Yearly cap: $12,500 per person; $25,000 on a joint return.
• Income limit: the deduction starts shrinking when modified adjusted gross income (MAGI) is over $150,000 ($300,000 joint). It drops by $100 for each $1,000 over the limit, so it is gone at $275,000 ($550,000 joint).
• FLSA overtime only: it must be overtime required by the Fair Labor Standards Act (over 40 hours a week). Overtime paid only because of a state rule (like California daily overtime), a union contract, or double time above 1.5× does not qualify.
• Federal income tax only: Social Security and Medicare (7.65%) are still charged on all overtime pay.
• You can take it without itemizing. It is available alongside the standard deduction.
• Valid Social Security number required, and married couples must file jointly (married filing separately can't claim it).
• Temporary: tax years 2025, 2026, 2027 and 2028.

How to use this calculator

1. Choose your filing status. The calculator uses 2026 tax rules.
2. Enter your hourly rate and total overtime hours for the year. Not sure? Multiply your usual weekly overtime by the number of weeks you work overtime.
3. Enter your other wages so the calculator can check the income limit.
4. Look at the qualified premium line. That is the amount you can deduct.
5. Compare tax without vs. tax with the deduction to see your savings.

To find out how much overtime you earn per week, start with the overtime calculator.

How the deduction is calculated

1. Overtime pay = hourly rate × 1.5 × overtime hours
2. Qualified premium = hourly rate × 0.5 × overtime hours
3. Deduction = the smaller of the qualified premium and $12,500 ($25,000 joint)
4. Subtract the phase-out if MAGI is over $150,000 ($300,000 joint)
5. Tax savings = deduction × your top tax bracket (roughly; the calculator does the exact bracket math)

Worked example: $25/hour, 500 overtime hours (2026, single)

A worker earns $25 an hour, works 40 regular hours every week (52 weeks), and works 10 overtime hours a week for 50 weeks.

Step 1 — Wages

Step 2 — Qualified overtime premium 500 hours × $12.50 (the "half") = $6,250. This is under the $12,500 cap and income is under $150,000, so the full $6,250 is deductible.

Step 3 — Federal income tax, without vs. with the deduction

Federal tax savings: $1,175 a year.

Step 4 — What does NOT change

• Social Security: $70,750 × 6.2% = $4,386.50
• Medicare: $70,750 × 1.45% = $1,025.88 These payroll taxes are the same with or without the deduction.

Paycheck vs. refund: when do you get the money?

Your employer still withholds federal tax on overtime from each paycheck. The deduction is claimed on your tax return, so for most people the savings arrive as a bigger refund (or a smaller bill).

If you'd rather have the money during the year, you can file a new Form W-4 and enter the expected deduction in the "Deductions" step. That lowers your withholding. Be careful: if you overestimate your overtime, you could owe at tax time. The IRS is updating the W-4 and withholding tables so the deduction can be reflected in paychecks from 2026; check the current W-4 instructions.

Your employer reports qualified overtime on your W-2 or in a statement. For 2025, employers could use a reasonable method because the forms weren't updated yet. Keep your paystubs. It is claimed on the new Schedule 1-A with your Form 1040.

Savings table (single filer, 2026, under the income limit)

When the deduction pulls income from one bracket into a lower one (like in the worked example), the savings mix both rates.

Does state tax follow this rule?

Not automatically. Each state decides whether to copy the federal deduction. Many states still tax overtime fully. States with no wage income tax (like Florida and Texas) don't tax overtime at all. Check your state's revenue department for its 2026 rules.

Frequently asked questions

Is overtime tax-free now? Not fully. For 2025–2028, only the extra half of time-and-a-half pay is deductible from federal income tax, up to $12,500 ($25,000 joint). Social Security, Medicare, and usually state tax still apply.

Why is tax still being taken out of my overtime? The deduction is claimed when you file your return. Your employer keeps withholding as usual unless you change your W-4.

If I get double time, can I deduct the whole extra amount? Only FLSA overtime premium qualifies, which is half your regular rate for hours over 40 in a week. Extra pay above that, or pay required only by state law or a contract, does not count.

Do salaried employees qualify? Only if they are non-exempt and receive FLSA overtime. Exempt salaried workers don't get overtime, so there is nothing to deduct.

What if I'm married? You must file jointly to claim it. The cap becomes $25,000 for the couple and the phase-out starts at $300,000 MAGI.

Do I need to itemize? No. You can claim it and still take the standard deduction.

How long does the deduction last? Tax years 2025 through 2028, unless Congress changes the law.

Can I use this for my 2025 refund? Yes. Choose tax year 2025 in the calculator, or use our tax refund calculator, which includes the overtime deduction.

Sources

• Public Law 119-21 (2025), section 70202 (new IRC §225, qualified overtime compensation)
• IRS — "One, Big, Beautiful Bill" provisions page and FAQs on no tax on overtime
• IRS — Form W-4 and Publication 505 (withholding)
• US Department of Labor — FLSA overtime rules

This calculator gives estimates for information only and is not tax advice. Tax rules for this deduction are new and IRS guidance may change.