The no tax on overtime calculator 2026 below estimates how much federal income tax you can save under the One Big Beautiful Bill Act (OBBBA) qualified-overtime deduction. Starting with tax year 2025 and running through 2028, eligible workers can deduct the premium portion of their time-and-a-half overtime — up to $12,500 (single) or $25,000 (joint) — directly from taxable income. This is the headline "no tax on overtime" benefit, and this page explains exactly how it works, who qualifies, and what it is worth.
Despite the popular name, "no tax on overtime" is not a complete exemption. The OBBBA created a temporary federal income-tax deduction for qualified overtime compensation. Two things matter: (1) only the FLSA premium portion qualifies — the extra "half" in time-and-a-half, not your full overtime check — and (2) the deduction is capped and phases out at higher incomes. Below we break down each rule with real 2026 numbers.
If your regular rate is $30/hour and overtime pays time-and-a-half ($45/hour), only the $15 premium per overtime hour is the "qualified overtime" that feeds the deduction. Multiply that premium by your overtime hours for the year, then apply the cap and any phaseout:
| Step | Example (single filer) |
|---|---|
| Regular rate | $30.00/hr |
| Overtime rate (1.5x) | $45.00/hr |
| Premium per OT hour | $15.00/hr |
| Overtime hours (year) | 300 hrs |
| Qualified overtime premium | $4,500 |
| Deduction cap (single) | $12,500 |
| Deductible amount | $4,500 (under cap) |
| Tax saved at 22% | ~$990 |
The deduction is capped at $12,500 per return for single filers and $25,000 for joint filers. It begins to phase out when modified adjusted gross income (MAGI) exceeds $150,000 (single) or $300,000 (joint), dropping $100 for every $1,000 of MAGI above the threshold.
| Filing status | Max deduction | Phaseout begins (MAGI) | Fully phased out near |
|---|---|---|---|
| Single / Head of household | $12,500 | $150,000 | $275,000 |
| Married filing jointly | $25,000 | $300,000 | $550,000 |
The "no tax on overtime" benefit only affects federal income tax. Social Security tax (6.2% up to the 2026 wage base of $184,500) and Medicare tax (1.45%, plus 0.9% additional Medicare over $200,000) still apply to 100% of your overtime wages, including the premium portion. State income tax treatment varies — most states have not adopted the federal deduction, so check your state rules.
Employers separately track and report qualified overtime compensation so the deductible premium is identifiable at tax time, generally via Form W-2 (box 12 designated code) or an equivalent year-end statement. You then claim the deduction on your federal return as an above-the-line deduction, meaning you can take it whether or not you itemize.
OBBBA created two parallel temporary deductions. The overtime deduction caps at $12,500/$25,000 on the premium portion of overtime; the tips deduction allows up to $25,000 of qualified tip income. Both run 2025-2028, both phase out at the same MAGI thresholds, and both reduce only federal income tax — not FICA. Tipped overtime workers may qualify for both, subject to the separate caps.
A single factory worker earns $28/hour and logs 8 overtime hours per week (about 400 hours/year at time-and-a-half). The premium is $14/hour × 400 = $5,600. That is below the $12,500 cap and the worker's $58,000 income is well under the phaseout. In the 22% bracket, the deduction saves roughly $1,232 in federal income tax for 2026.
Partly. The One Big Beautiful Bill Act (OBBBA) created a temporary federal income-tax deduction for qualified overtime, available for tax years 2025 through 2028. It is not a full exemption: only the premium portion of overtime (the extra 'half' in time-and-a-half) qualifies, and the deduction is capped at $12,500 for single filers and $25,000 for joint filers. Social Security and Medicare (FICA) taxes still apply to all overtime.
Qualified overtime is the overtime premium required under Section 7 of the federal Fair Labor Standards Act (FLSA) — the amount paid above your regular rate. If you earn $30/hour and get $45/hour for overtime, only the $15 premium per overtime hour is deductible, not the full $45. Overtime that exceeds the FLSA requirement (such as contractual or double-time agreements beyond the legal minimum) does not qualify for the extra premium portion.
The maximum deduction is $12,500 of qualified overtime premium per single return and $25,000 per joint return. Your actual tax savings equal the deduction times your marginal federal income-tax rate. A worker in the 22% bracket who deducts $5,000 of overtime premium saves about $1,100 in federal income tax.
Yes. The deduction begins to phase out once modified adjusted gross income (MAGI) exceeds $150,000 for single filers and $300,000 for joint filers, reducing by $100 for every $1,000 of MAGI above the threshold.
Yes. The OBBBA overtime provision only affects federal income tax. The full 7.65% FICA tax (6.2% Social Security up to the $184,500 2026 wage base plus 1.45% Medicare) still applies to your entire overtime wages, including the premium portion.
Yes. The qualified overtime deduction is an above-the-line deduction, so you can claim it whether you itemize or take the standard deduction ($16,100 single / $32,200 joint for 2026).
Employers report qualified overtime compensation separately, generally on Form W-2 (box 12 using the designated code) or an equivalent statement, so the amount eligible for the deduction is clearly identified at tax time.
No. It is temporary and currently scheduled for tax years 2025, 2026, 2027, and 2028 only, unless Congress extends it.