Is overtime taxed? Yes, and a federal deduction covers part of it from 2025 to 2028

Last verified November 1, 2026

Yes. In the US, overtime pay is wages, and wages are taxed. What changed is that for tax years 2025 to 2028 you can deduct part of it on your federal return: the extra half of overtime that federal law requires, up to $12,500 a year, or $25,000 on a joint return. The deduction shrinks once modified adjusted gross income passes $150,000 ($300,000 jointly).

It lowers federal income tax only. Social Security and Medicare still apply to overtime, as they do to other wages, and state income tax depends on your state. Your paycheck does not change on its own: your employer keeps withholding on overtime unless you give it a new Form W-4. Without one, the saving arrives when you file.

Estimate your deduction with the no tax on overtime calculator.

What is still taxed and what is not

Tax	Is overtime still taxed?	Why
Federal income tax	Yes, but part of it can be deducted for 2025 to 2028	26 U.S.C. 225 allows a deduction for the FLSA overtime premium
Social Security	Yes, as on other wages	Overtime is generally not exempt from employment taxes (FS-2026-13, Q1). Social Security stops at the yearly wage base ($184,500 in 2026)
Medicare	Yes, as on other wages	The W-2 instructions say code TT amounts are still generally subject to both shares of Social Security and Medicare tax. Medicare has no wage base
Federal income tax withholding	Yes, by default	Your employer withholds as usual unless you file a new Form W-4 that counts the expected deduction (step 4(b))
State income tax	Depends on the state	Section 225 is a federal law; each state decides whether to follow it

Which part of overtime is deductible?

Only the premium: the amount above your regular rate that the Fair Labor Standards Act (FLSA) requires. If you are paid only an hourly wage, your regular rate is that wage; shift differentials, commissions and bonuses promised in advance raise it (29 CFR 778.109, 778.211). Under the FLSA's usual rule, a covered, non-exempt employee earns at least time and a half for hours over 40 in a workweek (29 U.S.C. 207). Of that time and a half, the regular rate is ordinary pay. The extra half is the part the law calls qualified overtime compensation (26 U.S.C. 225(c)).

A worked example: you earn $25 an hour and work 10 hours of overtime a week for 50 weeks.

Line	Amount
Overtime hours in the year	500
Overtime pay at $37.50 an hour	$18,750.00
The extra half: $12.50 × 500 hours	$6,250.00
Federal income tax saved, roughly, if your top rate is 12%	$750.00
Federal income tax saved, roughly, if your top rate is 22%	$1,375.00
Social Security and Medicare on the overtime pay, not changed by the deduction (7.65% employee share, if your total wages are under $184,500)	$1,434.38

The saving is an estimate: it multiplies the deduction by one tax rate. Your real figure comes from your whole return.

What does not count

The IRS says only "the amount minimally necessary to satisfy 29 USC § 207" counts (FS-2026-13, Q16). So these are left out:

State overtime. California's daily overtime after 8 hours, for example, is required by state law, not the FLSA. Hours over 8 in a day that do not take the week past 40 add nothing to the deduction.
Double time beyond what the FLSA requires, and overtime paid only because a contract, union agreement or company policy says so.
Exempt employees. If the FLSA does not require overtime for your job, none of your overtime qualifies, whatever another law or your employer pays (FS-2026-13, Q4).

Some workers have a different FLSA rule. Most federal employees covered by OPM rules, for example, have an 8-hour daily threshold as well as the 40-hour weekly one (FS-2026-13, Q28).

Who can claim it

You are owed overtime under the FLSA and are not exempt.
If married, you file a joint return. Married filing separately cannot claim it (26 U.S.C. 225(e)).
The return includes a Social Security number valid for work, issued by the return's due date (including extensions), for each person whose overtime is claimed (225(d); FS-2026-13, Q24 and Q25).
The tax year is 2025, 2026, 2027 or 2028. No deduction is allowed for tax years beginning after December 31, 2028 (225(g)).

You do not have to itemize. The deduction is taken on Schedule 1-A (Form 1040), whether you take the standard deduction or itemize.

The cap and the phase-out

The deduction is capped at $12,500 per return, or $25,000 on a joint return. The joint cap is per return, not per spouse. The deduction is then reduced by $100 for each $1,000 of modified adjusted gross income (MAGI) over $150,000, or $300,000 on a joint return (26 U.S.C. 225(b)).

Filing status	Reduction starts at MAGI of	Full deduction gone at
Single, head of household, qualifying surviving spouse	$150,000	$275,000
Married filing jointly	$300,000	$550,000

Married filing separately cannot claim the deduction.

Schedule 1-A counts only whole $1,000 steps, so $999 over the line reduces nothing.

Why does my overtime seem to be taxed more?

Usually it is the withholding, not the tax. Two common reasons:

Overtime can be withheld as supplemental wages. IRS Publication 15 lists overtime pay as a supplemental wage. If your employer pays it separately from regular wages, it may withhold federal income tax at a flat 22%.
A bigger paycheck is withheld as if every paycheck were that big. The regular withholding method in IRS Publication 15-T treats one pay period's wages as if you earned them every period, so a heavy overtime week can be withheld at a higher rate than your yearly income needs.

Either way, withholding is a prepayment. Your actual tax is worked out on your return, and anything withheld over that comes back as a refund.

A higher bracket does not tax your whole income at the higher rate either. Federal brackets are marginal: only the dollars above a bracket's starting point are taxed at that bracket's rate.

How do I claim it?

For 2026 to 2028, the deduction is limited to the qualified overtime reported to you. Employers report it on Form W-2 in box 12 with code TT. In rare cases, a worker who is an employee under the FLSA but treated as a contractor for tax purposes gets it in box 14 of Form 1099-MISC or box 1d of Form 1099-NEC (FS-2026-13, Q6 and Q7).

If the code TT amount is too low or missing, ask your employer for a corrected W-2 (Form W-2c); without one you can deduct only the amount reported. If it is too high, you can deduct only the qualified overtime you were actually paid. The IRS says you cannot use Form 4852 to report the amount yourself (FS-2026-13, Q21 to Q23).

For 2025, employers did not have to report the amount separately (Notice 2025-69). You could work it out from pay stubs or other records using one of the methods in that notice, and keep the records.

Copy the amount to Schedule 1-A, Part III, and the deduction carries to Form 1040.

Frequently asked questions

Do I have to pay taxes on overtime now?

Yes. Overtime is still taxable income, and Social Security and Medicare apply to it, as they do to your other wages. For 2025 to 2028 you can deduct the FLSA premium, the extra half, when you file your federal return.

Will I get my overtime tax back?

Usually when you file. The deduction lowers the federal income tax on your return, which can mean a larger refund or a smaller bill. From 2026 you can also give your employer a new Form W-4 that counts the expected deduction (step 4(b)), so less is withheld from each paycheck. The deduction does not return Social Security, Medicare or state tax.

Is overtime tax free in 2026?

No. For 2026, part of it can be deducted from federal taxable income: the extra half required by the FLSA, up to $12,500 ($25,000 joint), shown in box 12 of your W-2 with code TT.

Is overtime taxed by my state?

That depends on your state. Section 225 is a federal deduction, and states set their own income tax rules. Check your state's revenue department before assuming it follows the federal rule.

Is California daily overtime deductible?

Only the part that is also FLSA overtime. Daily overtime required only by California law does not qualify. Hours over 40 in the workweek do, at the half-time premium.

When does the no tax on overtime deduction end?

After the 2028 tax year. Section 225(g) allows no deduction for tax years beginning after December 31, 2028, unless Congress extends it.

Not legal, tax or payroll advice. Laws change; check the linked official source before relying on a figure.