No Tax on Overtime Calculator (US), 2025 to 2028

How the deduction works

The 2025 tax law (Public Law 119-21) added a federal income tax deduction for "qualified overtime compensation": overtime pay required by section 7 of the Fair Labor Standards Act, to the extent it is above your regular rate. Federal law requires 1.5 times the regular rate after 40 hours in a workweek (see the overtime calculator), so the qualified part is the extra half, counted one workweek at a time:

Qualified overtime = hours over 40 in the workweek × ½ × regular rate
Deduction = the smaller of that total and the cap, less $100 for every full $1,000 of income over the limit

That is the rule for most employees. Some are under a different FLSA rule: hospital and residential-care staff on a 14-day period (29 U.S.C. 207(j)), police and firefighters (207(k)), state and local workers paid in comp time (207(o)), and federal employees under OPM rules, most of whom have an 8-hour daily threshold as well as the 40-hour weekly one. The hours mode does not model these rules; use your pay stub or W-2 figure.

IRS FS-2026-13, Q12, Q17, Q18 and Q28.

You can take it whether you itemize or take the standard deduction. It is a deduction, not an exclusion: the overtime stays in your wages in box 1 of your W-2. The saving the tool shows is the deduction times one tax rate you choose, so it is a rough figure, not the tax you owe.

Worked example

A single filer is paid $20.00 an hour and works 50 hours a week for 50 weeks of 2025. Her MAGI is $60,000.

From hours to deduction
Step	Amount
Overtime hours each week	50 − 40 = 10
Premium each week	10 × ½ × $20.00 = $100.00
Qualified overtime for the year	50 × $100.00 = $5,000.00
Cap and income limit	neither applies
Deduction	$5,000.00

She was paid $15,000 for those 500 overtime hours (500 × $30.00), but only the $5,000 premium is deductible. At a 12% top rate that lowers her federal income tax by about $600.

Raise her MAGI to $175,500 and she is $25,500 over the $150,000 limit: 25 full thousands, so the deduction falls by $2,500 to $2,500. At $200,000 it is gone.

Overtime that does not count

When an employer pays more than the FLSA requires, the IRS says "only the amount minimally necessary to satisfy 29 USC § 207 is qualified overtime compensation." In practice:

State daily overtime. Overtime that state law requires and the FLSA does not, such as California's overtime after 8 hours in a day or its 7th-day premium, adds nothing unless the same hours are over 40 in the workweek.
Double time. Only the half-time part of an hour paid at 2 times counts. The IRS example: 10 overtime hours at $20.00 paid at double time give $100 of qualified overtime, not $200.
Contract or policy premiums. Overtime after 35 hours, weekend or holiday premiums and union-contract overtime count only as far as the FLSA would have required them.
Qualified tips. Pay that counts as a qualified tip for the separate no-tax-on-tips deduction is not qualified overtime, so the same dollars are never counted twice (26 U.S.C. 225(c)(2)).
Exempt employees. If you are exempt from FLSA overtime, none of your overtime qualifies, even when state law or a contract pays it.

California daily overtime, worked through

$20.00 an hour, California rules
Week	Daily overtime paid	FLSA hours over 40	Qualified overtime
Four 10-hour days (40 h)	8 h × $30.00 = $240.00	0	$0.00
Five 10-hour days (50 h)	10 h × $30.00 = $300.00	10	10 × $10.00 = $100.00

In the 40-hour week every overtime hour comes from the state's 8-hour daily rule, so none of it is federal overtime. In the 50-hour week the same 10 hours are over 40 for the week, so their half-time premium qualifies. The hours mode of the calculator counts only hours over 40 for this reason.

IRS FS-2026-13, Q4 and Q16; IRS Notice 2025-69, section III.B.

The cap and the income limit

Filing status	Most you can deduct	Reduction starts above	Gone at
Single, head of household, qualifying surviving spouse	$12,500	$150,000	$275,000
Married filing jointly	$25,000	$300,000	$550,000

The cap is per return, so on a joint return it covers both spouses' overtime together. Schedule 1-A counts only whole thousands of MAGI over the limit: $999 over means no reduction. The "gone at" column assumes the full cap; a smaller deduction runs out sooner. MAGI is your adjusted gross income plus any income excluded as foreign earned income (section 911), as income from Guam, American Samoa or the Northern Mariana Islands (section 931), or as income from Puerto Rico (section 933).

26 U.S.C. 225(b); Schedule 1-A (Form 1040) 2025, lines 15 to 21.

Who can claim it

You were paid overtime the FLSA requires, so you are covered by the FLSA and not exempt from its overtime rules.
You have a Social Security number valid for work, issued by your return's due date (including extensions). If both spouses had overtime, both need one.
If you are married, you must file a joint return; married filing separately gets no deduction (26 U.S.C. 225(e)). If you lived apart from your spouse and may count as unmarried under 26 U.S.C. 7703(b), the IRS guidance we read does not address your case, so check with the IRS or a tax professional before claiming.
The tax year is 2025, 2026, 2027 or 2028. The law ends the deduction for tax years beginning after December 31, 2028.

26 U.S.C. 225(c) to (g); IRS FS-2026-13, Q24 and Q25.

Your W-2 and your return

For 2025, employers did not have to report qualified overtime separately. Without a figure in box 14 or on a separate statement, the IRS lets you use a reasonable method from your pay records:

A stub that shows the overtime premium on its own: use that amount.
A stub that shows total overtime pay at 1.5 times: use one third of it.
Overtime paid at 2 times: use half of the premium shown, or one quarter of the total overtime pay.
No stub that separates overtime: use your regular rate and your hours over 40 each week.

Each method uses a pay record that covers all of 2025. If a bonus raised your regular rate, you may adjust the one-third or one-quarter method; if a different FLSA rule applies to you (207(j), (k) or (o)), work it out under that rule. Keep the records you used.

IRS Notice 2025-69, section III.B.2, methods (A) to (G), examples 1 to 4, footnote 20.

From 2026, employers report it on the W-2 in box 12 with code TT (in rare cases on Form 1099-NEC, box 1d, or Form 1099-MISC, box 14), and you can deduct only what is reported there. If the figure is too low, ask your employer for a corrected W-2c. If it is too high, you can use only what you were actually paid. Either way the deduction is figured on Schedule 1-A (Form 1040), Part III.

IRS Notice 2025-69, section III.B.2, examples 1 to 4; IRS FS-2026-13, Q6, Q10 and Q19 to Q22.

Withholding and payroll taxes

Your employer still withholds federal income tax on overtime, and overtime is still generally subject to Social Security and Medicare taxes. The deduction lowers only your federal income tax, when you file. To have less withheld during the year, give your employer a new Form W-4: the 2026 form takes expected deductions like this one in step 4(b), and the IRS Tax Withholding Estimator accounts for it too. For the plain-language version, see is overtime taxed.

IRS FS-2026-13, Q1, Q8 and Q9; 2026 General Instructions for Forms W-2 and W-3, box 12, code TT.

Questions

How much of my overtime is deductible at $25 an hour?

$12.50 for each hour over 40 in a workweek. Ten such hours a week for 40 weeks gives 400 × $12.50 = $5,000.

Source: 26 U.S.C. 225(c)(1)

Can I use Form 4852 if my employer will not correct code TT?

No. The IRS says a substitute Form 4852 does not meet the reporting requirement, so only the amount on your W-2 or a corrected W-2c can be used.

Source: IRS FS-2026-13, answer 23

Does no tax on overtime lower my state income tax?

This is a federal income tax deduction. State income tax rules are separate, so check with your state's tax agency before counting on a state saving.

I own part of the business I work for. Do I qualify?

Generally not if you own at least a bona fide 20 percent equity interest and are actively engaged in managing the business. The FLSA treats you as an exempt executive, so your overtime is not qualified.

Source: IRS FS-2026-13, answer 5

How do federal employees know if they qualify?

Block 35 of the Standard Form 50 shows your FLSA category: "N" means nonexempt and eligible for FLSA overtime, "E" means exempt.

Source: IRS FS-2026-13, answer 26

I get comp time from a state or local government. When does it count?

When the comp time is paid: as wages for time off you take, or as a cash-out when you leave. One third of that pay at the applicable rate is qualified overtime. Earning comp time does not count on its own.

Source: IRS FS-2026-13, answer 18; IRS Notice 2025-69, example 6

Sources

Rules checked: October 26, 2026
Written by: SumTrue
Tested against: Published test cases

No tax on overtime calculator