The no-tax-on-overtime provision under the One Big Beautiful Bill Act (P.L. 119-21) creates a federal income tax deduction on qualifying overtime premium pay, not an exemption from all taxes. FICA and payroll taxes still apply in full. Enter your overtime premium total, MAGI, and filing status below to estimate your 2026 deduction.
This calculator provides estimates for educational purposes only and is not tax or legal advice. This is an estimate of the federal income tax deduction only. FICA and payroll taxes remain unchanged on all overtime wages. Confirm eligibility and amounts with a CPA or tax professional. Confirm with your CPA and the relevant agency.
No Tax on Overtime Calculator
What the No-Tax-on-Overtime Law Actually Does
The One Big Beautiful Bill Act (P.L. 119-21), signed into law in 2025, creates a temporary above-the-line deduction for qualifying overtime premium pay. It is effective for tax years 2025 through 2028.
In plain terms:
If you work more than 40 hours in a week and receive overtime pay at 1.5 times your regular rate under the FLSA, the premium portion (the extra 0.5x above your base rate) may qualify for a federal income tax deduction.
The deduction reduces your taxable income. It does not eliminate tax on your entire overtime paycheck.
The maximum deduction is $12,500 for single filers or $25,000 for married filing jointly per tax year.
This is not a payroll tax exemption. Social Security tax (6.2%), Medicare tax (1.45%), and the additional Medicare tax (0.9% above $200,000) continue to apply to all overtime wages on both the employer and employee side. The calculator shows the income tax deduction only.
Deduction Limits and MAGI Phase-Out
The overtime deduction is not unlimited. Two caps apply:
Dollar cap:
Single, head of household, or married filing separately: up to $12,500 in qualifying overtime premium per year.
Married filing jointly: up to $25,000 combined.
MAGI phase-out:
The deduction begins to phase out when modified adjusted gross income (MAGI) exceeds $150,000 for single filers or $300,000 for married filing jointly.
Above those thresholds the deduction is gradually reduced and eventually eliminated.
What counts as qualifying overtime premium? Under the FLSA, overtime is hours worked beyond 40 in a workweek paid at 1.5 times the regular rate. The deductible portion is the premium, the 0.5x above your base hourly rate, not the entire overtime paycheck. If your employer pays double time voluntarily, only the FLSA-required 1.5x portion qualifies under the current law.
Enter your total overtime premium, estimated MAGI, and filing status in the calculator to see your deduction after the phase-out.
What Does Not Change: FICA and Employer Obligations
This is the most commonly misunderstood part of the law. The no-tax-on-overtime provision is a federal income tax deduction only. It does not change any of the following:
Employee FICA: You still pay 6.2% Social Security and 1.45% Medicare on all overtime wages. The additional 0.9% Medicare tax still applies above $200,000.
Employer FICA: Your employer still pays the matching 6.2% Social Security and 1.45% Medicare on your overtime wages.
FUTA and SUTA: Employer unemployment taxes still apply to overtime wages up to the applicable wage bases.
State income tax: The deduction is federal only. Whether your state conforms depends on your state's tax code.
Employer withholding: Employers must continue to withhold payroll taxes on overtime wages. The income tax deduction is claimed on your annual return, not through reduced withholding at the paycheck level unless the IRS issues updated W-4 guidance.
Calling this "no tax on overtime" is shorthand. The accurate description is a partial income tax deduction on the overtime premium portion of your pay.
Who Qualifies and Common Misconceptions
To claim the overtime deduction, you generally need to be a non-exempt employee earning FLSA overtime at 1.5 times your regular rate for hours above 40 per workweek. Salaried exempt employees who do not receive FLSA overtime typically do not qualify.
Common misconceptions:
"No tax" means zero taxes on overtime: It does not. FICA is unchanged. You receive an income tax deduction, not a full exemption.
"My overtime paycheck will be bigger immediately": Not necessarily. The deduction is claimed on your annual tax return. Your employer continues standard withholding unless IRS guidance changes the process.
"It applies to all extra pay":Shift differentials, holiday premiums, and bonuses are not FLSA overtime. Only the statutory 1.5x premium for hours above 40 qualifies.
"It is permanent": The provision is temporary, covering tax years 2025 through 2028. Congress would need to pass new legislation to extend it.
This calculator provides an estimate, not tax advice. Confirm your eligibility and deduction amount with a CPA or tax professional.
Frequently Asked Questions
Does no tax on overtime mean I pay zero taxes on overtime hours?
No. The OBBBA creates a federal income tax deduction on the overtime premium, the extra 0.5x above your base rate. Social Security (6.2%), Medicare (1.45%), and any applicable state taxes still apply to all overtime wages. It reduces taxable income, not your total tax to zero.
How long does the no-tax-on-overtime provision last?
The deduction is temporary under P.L. 119-21, effective for tax years 2025 through 2028. It expires after the 2028 tax year unless Congress passes legislation to extend or make it permanent.
Can my employer adjust withholding for this deduction?
The deduction is currently claimed on your annual tax return. Employers continue standard payroll tax withholding on overtime wages. If the IRS issues updated W-4 procedures, your employer may adjust, but that has not been confirmed as of 2026.
Does this deduction apply to state income taxes?
The OBBBA deduction is federal only. Whether your state recognizes it depends on whether your state conforms to the federal tax code change. Check with your state tax agency or a CPA for your specific situation.