How does the no tax on overtime deduction work?

For tax years 2025 through 2028 you can deduct the overtime premium the Fair Labor Standards Act requires: the half in time and a half for hours past 40 in a workweek. At $25 an hour with 5 overtime hours a week for 50 weeks, overtime pays $9,375 and $3,125 of it is deductible. You claim it on Schedule 1-A (Form 1040), whether or not you itemize.

What is the maximum no tax on overtime deduction?

$12,500 a year, or $25,000 if married filing jointly. It is reduced by $100 for each full $1,000 of modified AGI over $150,000 ($300,000 joint), so it is gone at $275,000 single. Married couples must file jointly to claim it.

Is overtime now tax-free?

No. Only the FLSA premium is deductible, and only from federal income tax. Social Security and Medicare are still taken out of all your overtime, state income tax follows your state's rules, and overtime only state law requires (such as California daily overtime) doesn't count.

No Tax on Overtime Calculator

Q: How much tax will I save?

Roughly the deduction times your federal tax bracket: a $3,125 deduction saves about $375 in the 12% bracket and about $688 in the 22% bracket. Your actual saving depends on your whole return.

Estimate your federal "no tax on overtime" deduction for tax years 2025 through 2028, and roughly what it saves you. It follows the IRS worksheet (Schedule 1-A, Part III) line by line: the qualified overtime premium, the $12,500 cap ($25,000 jointly) and the income phase-out. Nothing leaves your browser.

Qualified overtime this year–

Your deduction–

Federal income tax saved (about)–

An estimate, not tax advice. Married and both working overtime? Add both of your qualified amounts in the W-2 field.

Know your overtime hours before the W-2 does. Clockbird (iPhone) clocks you in with one tap and counts your overtime past 40 hours every week, so you can check your pay stub and your W-2 against your own record. Just one week to check? Use the overtime calculator.

What counts as qualified overtime

Only the premium the federal Fair Labor Standards Act (FLSA) requires: half your regular rate for each hour past 40 in a workweek. With time and a half, the "half" is deductible and the "time" is not.

Premium per overtime hour = regular rate ÷ 2. At $25 an hour, $12.50.
Qualified overtime for the year = premium × overtime hours. 5 hours a week for 50 weeks = 250 hours × $12.50 = $3,125 (your overtime pay is $9,375).
Deduction = the smaller of that and $12,500 ($25,000 married filing jointly), minus the phase-out below.

Your regular rate includes most bonuses and shift differentials, so it can be higher than your base rate. Paid double time, or overtime under a contract at more than 1.5×? Still only half the regular rate per hour past 40 counts.

What doesn't count

Overtime only state law requires, such as California's daily overtime for a 10-hour day in a 40-hour week.
Overtime of FLSA-exempt employees (most salaried managers and professionals), even if the employer pays it.
Any premium above 1.5×, and overtime for hours under 40 that your employer pays by choice.

Examples

Worker	Overtime	Qualified (½ rate)	Deduction	Saved at 12%	Saved at 22%
Warehouse, $20/h, single	5 h/week × 50	$2,500	$2,500	$300	$550
Electrician, $25/h, single	5 h/week × 50	$3,125	$3,125	$375	$688
Nurse, $45/h, single	12 h/week × 50	$13,500	$12,500 (cap)	$1,500	$2,750
Same nurse, married filing jointly	12 h/week × 50	$13,500	$13,500	$1,620	$2,970

Your bracket depends on your whole household income after deductions; for many hourly workers that is 12% or 22%.

The income phase-out

Above $150,000 of modified adjusted gross income ($300,000 married filing jointly), the deduction drops by $100 for each full $1,000 over the line (Schedule 1-A, lines 16–21). At $170,400, you are $20,400 over: 20 full thousands × $100 = $2,000 off, so a $6,000 deduction becomes $4,000. It reaches zero at $275,000 single and $550,000 jointly for the full $12,500 or $25,000.

How to claim it

Find your qualified overtime. From tax year 2026, employers must report it separately. For 2025 they didn't have to, so you can work it out from your pay stubs: overtime hours past 40 × half your regular rate.
Fill in Schedule 1-A (Form 1040), Part III, lines 14a–21, and file it with your Form 1040. You get it with the standard deduction too; no need to itemize.
You need a Social Security number valid for work, and if you are married you must file jointly.

FAQ

Is overtime tax-free now?

No. Only the FLSA premium is deductible, and only from federal income tax. Social Security and Medicare are still taken out of all your overtime, and your employer withholds as usual, so the saving shows up when you file (or sooner if you update your Form W-4). State income tax follows your state's rules.

Which years does it cover?

Tax years 2025, 2026, 2027 and 2028, with the same $12,500 / $25,000 limits each year.

How much tax will I save?

Roughly the deduction times your federal tax bracket: $3,125 saves about $375 at 12% and about $688 at 22%. It's a little less if the deduction moves part of your income into a lower bracket. Your actual saving depends on your whole return.

I'm paid salary. Do I qualify?

Only if you are non-exempt under the FLSA, meaning your employer must pay you overtime past 40 hours. Most salaried managers and professionals are exempt and don't qualify. Need your hourly equivalent? Use the salary to hourly calculator.

What about tips?

Tips have their own deduction (Schedule 1-A, Part II, up to $25,000). This calculator covers overtime only.

Rules checked on 2026-10-05 against IRS: what to know about the No Tax on Overtime deduction, the IRS questions and answers on qualified overtime and Schedule 1-A (Form 1040). General information, not tax advice. Corrections: [email protected].