No tax on overtime is worth a federal deduction of up to $12,500 for single filers and $25,000 for joint filers in 2026 — but only on the time-and-a-half premium portion of qualifying overtime, not your whole overtime check. For a typical worker that translates to roughly $1,000 to $3,000 in real federal tax savings a year, depending on how much overtime you work and your tax bracket. The deduction runs for tax years 2025 through 2028 under the One Big Beautiful Bill Act (OBBBA). Use the calculator below to estimate your own savings.
The headline "no tax on overtime" is an above-the-line federal income tax deduction, not a full exemption. It applies only to the premium half of time-and-a-half pay — if you earn $30 an hour normally and $45 in overtime, the deductible part is the extra $15 an hour, not the full $45. The maximum deduction is $12,500 (single) or $25,000 (married filing jointly) per year. Because it is a deduction, your savings equal the deductible amount × your marginal tax rate.
| If your marginal rate is | And you max the $12,500 deduction | Federal tax saved |
|---|---|---|
| 12% | $12,500 | $1,500 |
| 22% | $12,500 | $2,750 |
| 24% | $12,500 | $3,000 |
Say you earn $30 an hour and work 8 overtime hours a week for 50 weeks. Your overtime gross is $30 × 1.5 × 8 × 50 = $18,000. The deductible premium is the half-time portion: $15 × 8 × 50 = $6,000 (under the $12,500 cap). With about $62,400 of regular wages you sit in the 12% bracket, so the deduction saves roughly $720 in federal tax that year (the default the calculator shows). A higher earner in the 22% bracket with the same $6,000 premium would save about $1,320 — the calculator above runs your exact rate, hours, and income.
The deduction is for qualified overtime — pay required under the Fair Labor Standards Act (FLSA) for hours worked beyond 40 in a workweek. It applies to non-exempt (typically hourly) workers whose overtime is mandated by federal law. Overtime paid only under a state rule or a contract that exceeds the FLSA requirement may not count toward the federal deduction. Your employer reports qualifying overtime so you can claim it on your return.
The annual deduction is capped at $12,500 for single filers and $25,000 for married couples filing jointly. If your deductible overtime premium exceeds the cap, you deduct only up to the cap. The deduction also phases out at higher incomes (above a modified adjusted gross income threshold), reducing or eliminating the benefit for high earners.
No. The deduction lowers federal income tax on the premium portion only. Overtime is still subject to Social Security and Medicare (FICA) tax, and to state income tax in states that have one. So your overtime check is not tax-free — it is partially income-tax-advantaged. The base-rate portion of overtime pay is taxed normally.
The deduction is generally claimed when you file your federal return, where it reduces taxable income and either lowers tax due or increases your refund. Employers continue normal federal withholding on overtime during the year, so for many workers the benefit shows up as a larger refund rather than a bigger weekly check. Adjusting your W-4 can shift some benefit into your paychecks, but be careful not to under-withhold.
OBBBA created two parallel deductions. "No tax on tips" allows a deduction of up to $25,000 of qualified tip income, while "no tax on overtime" caps at $12,500 single / $25,000 joint on the overtime premium. They are separate and a worker who both earns tips and works overtime may qualify for both, subject to each cap and the income phaseouts.
To hit the $12,500 single cap, your deductible premium (half your base rate × overtime hours) must reach $12,500. At a $30 base rate, the premium is $15/hr, so you would need about 834 overtime hours a year — roughly 16 overtime hours a week, every week. Most workers fall well under the cap, so their savings are proportional to the overtime they actually work.
The federal deduction does not change state income tax. In a no-income-tax state (Texas, Florida, Washington) there is no extra state hit on overtime regardless. In a state with income tax, your overtime premium remains fully taxable at the state level unless your state passes its own conforming break.
No. As enacted, the overtime deduction applies to tax years 2025 through 2028. Unless Congress extends it, overtime returns to fully taxable federal income afterward. Plan around the current window and watch for legislative updates.
Use the calculator above: enter your regular rate, weekly overtime hours, weeks with overtime, other income (to find your bracket), and filing status. It computes the deductible premium (capped), your marginal rate, and your estimated federal tax savings. Remember FICA and state tax still apply.
Because only the time-and-a-half premium is deductible, your savings scale with how much overtime you work. The table assumes a $30 base rate (so a $15/hr premium) and a 22% marginal bracket.
| OT hours/week | Annual premium | Deductible (cap $12,500) | Tax saved at 22% |
|---|---|---|---|
| 4 | $3,000 | $3,000 | ~$660 |
| 8 | $6,000 | $6,000 | ~$1,320 |
| 12 | $9,000 | $9,000 | ~$1,980 |
| 16+ | $12,000+ | $12,500 (capped) | ~$2,750 |
Higher base rates reach the cap faster because the premium per hour is larger. The calculator computes your exact figure from your rate, hours, and bracket.
Because the deduction is claimed at filing, it flows through your Form 1040 as an adjustment that reduces taxable income. Your W-2 (or an accompanying statement) reports qualified overtime so you can substantiate the amount. The deduction is above the line, meaning you can claim it whether you take the standard deduction or itemize — it does not require itemizing. For most workers, the practical effect is a smaller balance due or a larger refund the year they claim it. Keep your pay stubs showing overtime hours in case you need to verify the premium.
If you reliably work significant overtime, you can adjust Form W-4 so less is withheld during the year, effectively pre-claiming part of the deduction in your paychecks instead of waiting for a refund. The safest method is the IRS Tax Withholding Estimator, which accounts for the deduction. Be cautious: if your overtime drops unexpectedly, under-withholding could leave you owing at filing. Many workers prefer to leave withholding alone and simply enjoy the larger refund, which is also a form of forced savings.
Three myths cause confusion. First, that all overtime is tax-free — only the premium portion is deductible, and only for federal income tax. Second, that it exempts overtime from FICA — it does not; Social Security and Medicare still apply. Third, that it appears automatically in your paycheck — in most cases you claim it at filing, not through reduced withholding, unless you proactively adjust your W-4. Understanding these limits sets realistic expectations: it is a meaningful but bounded benefit, not a blanket exemption.
The deduction cap depends on filing status, which changes the maximum benefit. Both still apply only to the time-and-a-half premium and phase out at higher incomes.
| Filing status | Max deduction | Max saved at 12% | Max saved at 22% |
|---|---|---|---|
| Single | $12,500 | ~$1,500 | ~$2,750 |
| Married filing jointly | $25,000 | ~$3,000 | ~$5,500 |
A two-earner married couple who both work overtime shares the single $25,000 household cap, so coordinate if both spouses log significant overtime.
The deduction delivers the most to workers who log steady, substantial overtime in industries where it is common — manufacturing, healthcare (nurses), logistics, construction, and public safety. Because the benefit equals the premium times your marginal rate, those in the 22% bracket gain more per deductible dollar than those in the 10-12% brackets, up to the cap. High earners, however, lose the benefit to the income phase-out. The sweet spot is a middle-income hourly worker who reliably works overtime: meaningful premium, solid marginal rate, and income below the phase-out.
To claim the deduction confidently, keep pay stubs that itemize overtime hours and the overtime rate for the year. Your employer's reporting (on the W-2 or a separate statement) is the primary source, but personal records help you verify the qualifying premium and catch errors. Note that only FLSA-required overtime — hours beyond 40 in a workweek — counts; voluntary extra pay that is not legally mandated overtime may not qualify. Good records also matter if your overtime spans the phase-out threshold, where the deductible amount is reduced.
It is worth a federal deduction of up to $12,500 for single filers and $25,000 for joint filers, applied only to the time-and-a-half premium of qualified overtime. For most workers that means $1,000 to $3,000 in real federal tax savings a year, equal to the deductible amount times your marginal tax rate.
No. The deduction only reduces federal income tax on the premium portion of overtime. Overtime is still subject to Social Security and Medicare (FICA) tax and to state income tax where applicable, so it is income-tax-advantaged, not fully tax-free.
The annual deduction is capped at $12,500 for single filers and $25,000 for married couples filing jointly. The deduction also phases out at higher modified adjusted gross income, reducing the benefit for high earners.
Only the premium half of time-and-a-half is deductible. If you earn $30 an hour normally and $45 in overtime, the deductible part is the extra $15 an hour, not the full $45. Your base-rate portion of overtime is taxed normally.
You generally claim it when you file your federal income tax return, where it lowers taxable income and increases your refund or reduces tax due. Employers keep normal withholding during the year, so the benefit often appears as a larger refund.
No. As enacted under OBBBA, the overtime deduction applies to tax years 2025 through 2028. Unless Congress extends it, overtime returns to fully taxable federal income afterward.