No Tax on Overtime Calculator
The OBBBA created a federal income tax deduction on your overtime premium — up to $12,500/year (or $25,000 filing jointly). Find out your exact tax savings, check eligibility, and see your 4-year total through 2028. Calculator opens below.
Calculate Your Overtime Tax Savings
Enter your details below — we’ll calculate your deductible overtime premium, phase-out reduction, and total federal income tax savings.
Include wages, investment income, business income, etc. Used to check phase-out.
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Am I Eligible for the No Tax on Overtime Deduction?
The OBBBA overtime deduction has specific eligibility requirements. Check each box to see if you qualify.
You must be a W-2 employee. Independent contractors, gig workers, and self-employed individuals do not qualify under current guidance.
You must be classified as non-exempt under the Fair Labor Standards Act. Most hourly workers qualify. Salaried employees earning above $35,568/year may be exempt — check with your HR department.
Your overtime must be mandated by the FLSA — time-and-a-half for hours over 40/week. Only this “half” premium is deductible. Overtime paid under union contracts, employer policy, or state law (not FLSA) does not qualify.
You must have a valid SSN issued before the return’s due date (including extensions). ITIN holders do not qualify.
If you and your spouse file separate returns (MFS), you cannot claim the overtime deduction. You must file jointly (MFJ) to claim the $25,000 joint deduction.
If your modified adjusted gross income exceeds $150,000 (single) or $300,000 (MFJ), your deduction is gradually reduced and may reach $0 at higher incomes.
No Tax on Overtime: What the Law Actually Says — and What It Doesn’t
When the phrase “no tax on overtime” first appeared during the 2024 presidential campaign, it implied something simpler than what Congress ultimately enacted. The One Big Beautiful Bill Act, signed on July 4, 2025, did not eliminate all taxes on all overtime pay. It created a federal income tax deduction — available on a non-itemized basis — for a specific, defined portion of overtime compensation earned under the Fair Labor Standards Act. Understanding the distinction between the campaign slogan and the statutory reality is essential for calculating your actual savings.
The deductible amount is called the “overtime premium” — the extra half-pay in time-and-a-half. If you earn $22 per hour and work 10 overtime hours in a week, your employer pays you $33 per hour (1.5 × $22) for those hours. Your total overtime paycheck for those 10 hours is $330. But only the premium portion — $11 per hour × 10 hours = $110 — is the qualified overtime compensation that counts toward your deduction. The remaining $220 (your regular rate applied to overtime hours) is ordinary taxable income as before. This distinction — premium only, not full overtime pay — is the most commonly misunderstood aspect of the provision and significantly affects how large a deduction workers actually receive.
Who Gains the Most — and Who Doesn’t Benefit at All
The deduction is structurally designed to benefit middle-income, FLSA non-exempt workers in industries with significant overtime hours. Nurses working hospital night shifts, construction workers on accelerated project timelines, truckers operating under extended runs, manufacturing floor workers during peak production periods, and law enforcement officers covering extended watches are among the primary beneficiaries. For a nurse earning $30/hour who averages 12 overtime hours per week for 48 weeks, the annual overtime premium is approximately $8,640 — all of which falls below the $12,500 cap, delivering approximately $1,900 in federal income tax savings at the 22% bracket. At the 24% bracket, that same deduction saves $2,074 per year, and $3,110 over the four-year life of the provision.
Some workers gain little or nothing. Low-income workers whose total income falls below the standard deduction threshold ($15,750 for single filers in 2025) already owe no federal income tax — the overtime deduction cannot reduce a tax bill that doesn’t exist. Higher-income workers with MAGI above $150,000 (single) or $300,000 (MFJ) see their deduction gradually reduced toward zero through the phase-out. Salaried workers classified as exempt under FLSA — which covers most salaried professionals earning above $35,568 per year — are ineligible because they don’t receive FLSA-required overtime pay in the first place. The Bipartisan Policy Center estimated that over 70% of salaried workers are FLSA-exempt, making the deduction inaccessible to them regardless of how many extra hours they work.
FICA, State Taxes, and What the Deduction Doesn’t Cover
The No Tax on Overtime deduction reduces only one layer of the tax stack: federal income tax. Two other layers remain fully intact. Social Security taxes (6.2% on wages up to $176,100 in 2025) apply to every dollar of overtime pay regardless of the deduction. Medicare taxes (1.45%, plus 0.9% additional for high earners) similarly apply in full. For a worker earning a $12,500 overtime premium, the FICA taxes alone on that amount are approximately $1,109 — meaning the deduction doesn’t touch roughly one-third of the total tax burden on that overtime income. At the state level, the federal deduction has no automatic effect. Each state independently decides whether to “conform” to federal changes; states that decouple from the OBBBA will still tax overtime under their own rules. Workers in high-income-tax states like California, New York, or Minnesota may find that state income tax erodes much of what the federal deduction saves.
Filing in 2026 — What Your W-2 Will Show
For the 2025 tax year, the IRS designated a transition period because the OBBBA was signed after many payroll systems had already been configured. For 2025 returns, the IRS confirmed that standard W-2 reporting applies without special overtime tracking. Employees will use their overtime totals shown on pay stubs and earning statements to calculate the deductible premium. Beginning with 2026 W-2s, employers are required to separately report FLSA overtime compensation in Box 12 using Code “TT.” This means your 2026 paycheck and year-end W-2 will show the exact premium amount already identified for you. For 2025, if your employer has not separately tracked your FLSA overtime premium, the IRS has provided a simplified calculation method using your regular rate and overtime hours. The deduction is claimed directly on Form 1040 as an adjustment to income — not as an itemized deduction — meaning it reduces your taxable income whether or not you itemize.
Want to see how the overtime deduction affects your complete federal tax picture — including your full bracket calculation and effective rate?
Use the Full Income Tax Calculator →Want to see how overtime pay affects your actual take-home paycheck after all withholdings — including FICA, state tax, and pre-tax deductions?
Use the Paycheck Calculator →How We Developed This Calculator
Our methodology, primary data sources, calculation logic, and accuracy assumptions — transparent and fully cited.
Primary Legislative Source
The calculation logic is derived directly from Section 70202 of the One Big Beautiful Bill Act (OBBBA), US Public Law 119-21, which President Trump signed into law on July 4, 2025. This is the sole statutory authority for the No Tax on Overtime deduction. We read the enrolled bill text to identify the exact definition of “qualified overtime compensation,” the deduction cap ($12,500 single / $25,000 MFJ), the phase-out thresholds ($150,000 / $300,000 MAGI), the filing status restrictions (no MFS), the FLSA eligibility requirement, and the effective dates (tax years 2025 through 2028).
IRS Guidance & Transition Rules
Because the OBBBA was signed mid-2025 (after most payroll systems had already been configured), the IRS issued transition-period guidance for tax year 2025. We incorporated the IRS’s simplified calculation method — using overtime totals from pay stubs and earning statements — and the Box 14 “FLSA OT Prem” W-2 reporting requirement for 2025. We also incorporated the draft 2026 W-2 update (Box 12, Code “TT” for FLSA qualified overtime) and the updated Form W-4 withholding worksheet (Section 1b). Final IRS regulations had not been published as of our last review date; the phase-out rate used in this calculator is based on the best available guidance and will be updated when final rules are issued.
Fair Labor Standards Act (FLSA) Data
Eligibility for the deduction is entirely governed by the Fair Labor Standards Act. We used the U.S. Department of Labor’s FLSA compliance guidance to establish which workers qualify as “non-exempt” — the population eligible for FLSA-required overtime pay. The salary level threshold used in this calculator reflects the 2019 DOL rule ($35,568/year, $684/week), which was reinstated after the Biden administration’s expanded threshold was vacated by federal courts in November 2024. Workers whose salary exceeds this threshold may be classified as exempt depending on their duties test and must consult their employer’s HR department to confirm FLSA non-exempt status.
Calculation Methodology
The overtime premium — the only deductible amount — is calculated as 0.5 × regular hourly rate × overtime hours per week × weeks of overtime per year. This represents the “half” in time-and-a-half: if you earn $22/hour and work 8 overtime hours/week, the premium is $0.5 × $22 × 8 = $88 per week. The actual deduction is the lesser of (a) the annual premium earned or (b) the phase-out adjusted cap. Federal income tax saving is calculated by multiplying the actual deduction by the selected marginal tax rate. For salaried-non-exempt employees, we divide annual salary by 2,080 (52 weeks × 40 hours) to derive an equivalent hourly rate. Federal income tax brackets use 2025 IRS Publication 15-T rates. FICA is shown separately and is not reduced by the deduction.
Phase-Out Calculation Basis
The OBBBA specifies that the deduction phases out for MAGI above $150,000 (single filers) and $300,000 (married filing jointly), but final IRS regulations specifying the exact reduction rate had not been published as of this tool’s last review. Our phase-out formula applies a $100 reduction per $1,000 of MAGI above the threshold — the same rate used for comparable OBBBA provisions — which fully eliminates the $12,500 deduction at $275,000 MAGI for single filers ($550,000 for MFJ). This rate is clearly labeled as an estimate throughout the calculator and will be updated to reflect final IRS regulatory guidance when published. Users above or near the phase-out threshold are encouraged to consult a CPA or enrolled agent for a precise calculation.
Review & Update Process
This calculator is reviewed and updated when: (1) the IRS publishes final regulations or new guidance on the OBBBA overtime deduction; (2) Congress modifies or extends the deduction beyond 2028; (3) annual IRS inflation adjustments affect federal tax brackets or standard deductions; or (4) new W-2 reporting requirements take effect (specifically the 2026 Code “TT” Box 12 update). Each update is reflected in the “Last reviewed” date in the disclaimer. We cross-reference the IRS, the Congressional Budget Office (CBO cost estimates), the Tax Foundation, and the Bipartisan Policy Center to validate our interpretations against authoritative third-party analyses.
Key Assumptions & Known Limitations
Frequently Asked Questions
The No Tax on Overtime deduction is a federal income tax deduction created by the One Big Beautiful Bill Act (signed July 4, 2025). Eligible workers may deduct up to $12,500 ($25,000 for MFJ) of their qualified overtime premium from federal taxable income for tax years 2025–2028. It only covers the overtime premium — the extra “half” of time-and-a-half — not the full overtime paycheck.
To qualify: (1) be a W-2 employee classified as FLSA non-exempt; (2) earn overtime at time-and-a-half for hours over 40/week; (3) have a valid Social Security number; (4) not file as Married Filing Separately. Independent contractors, gig workers, most exempt salaried employees, and workers with non-FLSA overtime generally do not qualify.
The deduction equals the overtime premium only. If your regular rate is $22/hr and you work 10 overtime hours, your OT pay is $33/hr × 10 = $330. Only the premium portion — $11/hr × 10 = $110 — is the deductible qualified overtime compensation. The regular-rate portion ($220) is still taxable. This premium is reported on your W-2 in Box 14 “FLSA OT Prem” for 2025, and Box 12 Code TT from 2026.
No. It only eliminates federal income tax on the deductible premium portion. Social Security (6.2%) and Medicare (1.45%) payroll taxes still apply to all overtime. State income taxes still apply in most states, as each state independently decides whether to conform to the federal OBBBA changes.
The deduction expires December 31, 2028. It applies retroactively from January 1, 2025 through 2028. Extending it beyond 2028 requires Congress to pass new legislation. The CBO estimated the 10-year cost at approximately $89 billion.
Yes. The deduction phases out for MAGI above $150,000 (single) or $300,000 (MFJ). As income exceeds these thresholds, the maximum deduction is gradually reduced. At high enough income levels, the deduction reaches $0. The provision primarily benefits middle-income hourly workers in high-overtime industries.
This calculator is for estimation purposes only. The “No Tax on Overtime” deduction was created by Section 70202 of the One Big Beautiful Bill Act (US Public Law 119-21), signed July 4, 2025, effective retroactively for tax years 2025–2028 per IRS.gov. The deductible amount equals the FLSA overtime premium (0.5× regular rate × qualifying overtime hours). Phase-out starts at $150,000 MAGI (single) and $300,000 (MFJ); exact phase-out rates are based on available IRS guidance and may be updated as final regulations are issued. FICA (Social Security 6.2% to $176,100; Medicare 1.45% + 0.9% additional) still applies to all overtime. State tax treatment varies — consult your state tax authority. This tool is not tax advice. Consult a qualified tax professional for your specific situation. Last reviewed: July 2026.