The no tax on overtime deduction covers only the premium the Fair Labor Standards Act requires, which is the "half" in time-and-a-half. The limit is $12,500 ($25,000 joint) and it phases out above $150,000 ($300,000 joint) of income. A worker paid $24 an hour for 150 overtime hours has $1,800 of qualified overtime.
Qualified overtime deduction
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How to Use the No Tax on Overtime Calculator
- Choose how to start: your hourly rate and overtime hours, the total pay for overtime hours from a pay statement, or the amount your employer reports in W-2 box 12 code TT.
- Fill in the matching boxes, then your filing status, whether you are FLSA overtime-eligible and your MAGI.
- Read the qualified overtime, the premium that does not qualify, the phase-out cut and the estimated tax saved.
| Result | What it means |
|---|---|
| Qualified overtime deduction | The amount that would go on Schedule 1-A line 21. It lowers taxable income, not your adjusted gross income. |
| Qualified overtime premium | The FLSA-required premium over your regular rate: the half in time-and-a-half. This is line 14 before the cap. |
| Premium that does not qualify | Pay above time-and-a-half, state-law overtime, holiday or weekend premium. It is taxed as normal pay. |
| Phase-out reduction | Lines 18 to 20: $100 off for every full $1,000 that MAGI is over the threshold. |
| Estimated income tax saved | The deduction times the rate you entered. A rough guide, because brackets are marginal. |
| Verdict band | Flags the cases that set the deduction to zero: married filing separately, no valid SSN, or no FLSA overtime eligibility. |
What Is the No Tax on Overtime Deduction?
The no tax on overtime deduction is a federal income tax deduction for qualified overtime compensation. Public Law 119-21 created it, and the IRS fact sheet FS-2025-03 says it applies to tax years 2025 through 2028.
It is not a tax holiday on all overtime pay. The IRS says overtime stays in gross income and in wages for payroll tax. You subtract only the part of overtime that the Fair Labor Standards Act (FLSA) requires and that is above your regular rate. For time-and-a-half, that is the half. Your regular wages for those hours remain fully taxed.
You can take the deduction whether you itemize or take the standard deduction. For the pay itself, see the overtime pay calculator, and how overtime pay is calculated for the rules behind the rate.
How Does the No Tax on Overtime Calculator Work?
The calculator first finds the qualified premium, then runs Schedule 1-A, Part III, lines 14 to 21.
Qualified overtime = 0.5 x regular rate x FLSA overtime hours then Deduction = max(0, min(qualified, cap) - $100 x floor((MAGI - threshold) / $1,000))The cap is $12,500, or $25,000 on a joint return. The threshold is $150,000, or $300,000 on a joint return.
- Find the premium. At a pay multiplier m, regular wages for the overtime hours are total pay divided by m. The qualified premium is half of those regular wages, whatever m is, because the FLSA requires only 1.5 times.
- Apply the cap (line 15). Take the smaller of the qualified premium and $12,500 ($25,000 joint). The joint cap covers both spouses together.
- Measure income (lines 16 to 18). Subtract the threshold from MAGI. If the result is zero or less, there is no reduction.
- Reduce (lines 19 and 20). Divide by $1,000, round down, multiply by $100.
- Deduction (line 21). Subtract line 20 from line 15. A negative answer becomes zero.
The IRS instructions give the same shortcut: when a statement shows total pay for overtime hours at time-and-a-half, divide the total by three. For double time, the same logic divides the total by four. The tool does both through the multiplier.
No Tax on Overtime Example: Worked Cases
Every number below was computed in code.
| Case | Inputs | Result |
|---|---|---|
| Time-and-a-half | Rate $24, 150 overtime hours, 1.5 times, single, MAGI $58,000 | Qualified premium $1,800. Deduction $1,800. Tax saved at 12 percent: $216. |
| Double time | Rate $30, 200 hours, 2 times, MAGI $70,000 | Overtime pay $12,000. Qualified $3,000. The other $3,000 of premium does not qualify. |
| State daily overtime too | Rate $36, 120 FLSA hours, plus 60 hours of state daily overtime, 1.5 times | FLSA premium $2,160. The $1,080 premium from the 60 state-law hours does not qualify. |
| Joint return with W-2 code TT | Box 12 code TT $30,000, MAGI $320,000 | Line 15 is $25,000. Line 19 is 20, line 20 is $2,000. Deduction $23,000. |
| IRS example, time-and-a-half | Total pay for overtime hours $15,000 | Divide by three: $5,000 qualifies. |
| IRS example, double time | Total pay for overtime hours $20,000 | Regular wages $10,000; half is $5,000 qualifies. |
The last two rows match worked examples printed in the Form 1040 instructions for Schedule 1-A.
What Counts as Qualified Overtime and What Does Not
Qualified overtime is overtime that section 7 of the FLSA requires, paid to an FLSA-eligible employee, above the regular rate. Anything else is ordinary pay.
| Pay type | Qualified? | Reason |
|---|---|---|
| The half in time-and-a-half for hours over 40 in a workweek | Yes | Required by FLSA section 7 and above the regular rate. |
| Pay above time-and-a-half, such as double time | Only the half portion | The IRS says the amount over time-and-a-half is not qualified. |
| Overtime paid by state law to a worker the FLSA does not cover | No | FLSA-ineligible workers have no qualified overtime, whatever other laws say. |
| Extra pay for weekends or holidays without more than 40 hours in the week | Generally no | The IRS instructions say it is generally not qualified. |
| Daily overtime under a state rule when weekly hours stay at or under 40 | No | The FLSA does not require it, so the premium is not qualified. |
| Qualified tips | No | Tips are handled in Part II of Schedule 1-A and cannot be counted twice. |
Public-sector employees can have special FLSA overtime rules, for example fire protection and law enforcement work periods, or compensatory time. The IRS instructions still divide the pay by three for the premium in the cases they give, and tell those employees to use the rule that applies to them.
Tax Year 2025 Versus 2026 and Later
The limits are the same, but how you prove the amount changes after 2025. IRS Notice 2025-69 gave 2025 relief: no separate W-2 reporting was required, so workers could estimate the premium from pay records, using the divide-by-three method and similar fractions.
| Tax year | Where the amount comes from | Source |
|---|---|---|
| 2025 | W-2 box 14 if your employer provides it, a pay statement, the divide-by-three style methods, or a reasonable method with your rate and hours | Form 1040 instructions for Schedule 1-A; Notice 2025-69 |
| 2026 to 2028 | Only the amount your employer reports on Form W-2, box 12, code TT. A corrected W-2c is the only fix for a wrong amount | IRS FS-2026-13, August 2026 |
That is why the tool has a "W-2 box 12 code TT" start. The IRS says the TT amount is the FLSA premium over the regular rate, and is not necessarily fully deductible, because the cap and phase-out still apply. For a year in the future, the calculator shows what to expect, but your W-2 decides the amount.
Factors That Change Your No Tax on Overtime Deduction
Your Regular Rate
The premium is half of the regular rate for each overtime hour. A higher regular rate raises the qualified amount in direct proportion. The IRS notes that a bonus can raise your regular rate, so ask your employer which rate applies to you.
FLSA Eligibility
Salaried exempt workers have no qualified overtime at all. Eligibility depends on duties and pay, not on a job title, so confirm it with your employer.
The Pay Multiplier
A multiplier above 1.5 does not raise the deduction. It raises taxable pay only. A union contract or state rule can add premium that stays taxed.
MAGI and Filing Status
The reduction is $100 for each full $1,000 over the threshold, so a $12,500 single-filer cap runs out at MAGI of $275,000, and a $25,000 joint cap runs out at $550,000. Married filing separately gets nothing.
Your Tax Rate
The saving is the deduction times your marginal rate. See marginal versus effective rates for how brackets work.
Qualified Overtime Compared with Gross Overtime Pay
Gross overtime pay and qualified overtime answer different questions. One is what you earn, the other is what you can subtract.
| Measure | What it counts | Where it appears |
|---|---|---|
| Gross overtime pay | Regular wages plus every premium for overtime hours | Pay stub and W-2 box 1 |
| FLSA premium | Half of the regular rate for FLSA overtime hours | W-2 box 12 code TT from 2026 |
| Deductible amount | FLSA premium after the cap and the phase-out | Schedule 1-A line 21 |
A worker with $15,000 of pay for overtime hours at time-and-a-half has $5,000 of qualified overtime. Even with no cap or phase-out, two thirds of that overtime pay stays fully taxed.
When to Use the Calculator
Before You File
Use it with your last pay stub to see how much overtime reduces taxable income, and to check that your W-2 box 12 code TT looks right.
When Choosing a Job or Shift Plan
Shift workers such as nurses, EMTs and electricians can see how extra hours change the deduction. For pay by profession, see the registered nurse salary calculator.
When Planning Withholding
A W-4 change can move the saving into each paycheck. Pair this tool with the W-4 guide. Your return decides the actual saving.
Common Mistakes with the Overtime Deduction
1. Deducting All Overtime Pay
Only the premium over the regular rate qualifies. Regular wages for overtime hours do not.
2. Treating Double Time as Fully Qualified
Only the half that the FLSA requires counts. Extra premium stays taxable.
3. Counting State Overtime for Exempt Workers
If the FLSA does not cover you, state or contract overtime does not qualify.
4. Forgetting the 2026 W-2 Rule
From 2026 the amount must be on your W-2, box 12 code TT. A pay stub alone is not enough.
5. Using the Overtime Rate as the Regular Rate
The premium is half of the regular rate. If you enter the overtime rate, you overstate the deduction.
6. Expecting a Payroll Tax Break
The IRS says overtime stays in wages for Social Security, Medicare and withholding. The deduction is for income tax only.
Accuracy and Limitations
The calculator reproduces the IRS line arithmetic for one employer and one overtime rate. It does not replace Schedule 1-A or the multi-employer worksheets in the Form 1040 instructions.
What it calculates accurately
- The $12,500 and $25,000 caps, the $150,000 and $300,000 thresholds and the $100 per $1,000 reduction, as printed on the 2025 Schedule 1-A.
- The one-half premium rule: half the regular rate for each FLSA overtime hour, or total overtime pay divided by twice the multiplier.
- The whole-number rounding down on line 19.
- The zero-deduction cases: married filing separately, no valid SSN, no FLSA eligibility.
What it does not account for
- Weekly overtime detail: you enter yearly hours. The FLSA counts hours by workweek, and your payroll system decides the true figure.
- Special FLSA rules for public safety work periods and compensatory time. Use the rule that applies to you.
- The 2026 W-2 rule: the real deduction uses the amount your employer reports in box 12 code TT.
- Overtime from several employers or on 1099 forms: use the IRS worksheets.
- Your actual bracket, credits, state tax, or law changes after 2026-10-03.
How We Calculate the Deduction
Frequently Asked Questions
How much overtime can I deduct?
You can deduct up to $12,500 of qualified overtime compensation per return, or $25,000 on a joint return, for tax years 2025 through 2028. The phase-out then reduces it when MAGI is over $150,000 ($300,000 joint).
Is all my overtime pay tax-free?
No. Only the premium that the FLSA requires, above your regular rate, is deductible. For time-and-a-half that is one third of the total overtime pay. The rest, and payroll taxes, still apply.
How do I find the qualified part of double-time pay?
Divide the total pay for the overtime hours by four. Regular wages are half the total, and the qualified premium is half of those. The IRS instruction example shows $20,000 of double-time pay giving $5,000 of qualified overtime.
Does California daily overtime count?
Only if the FLSA also requires the pay. Daily overtime that a state requires, in weeks of 40 hours or fewer, is not FLSA overtime, so its premium is not qualified. Weekly hours over 40 still qualify.
Do salaried exempt employees qualify?
No. The overtime must be required by the FLSA, which means you are covered and not exempt. If you are FLSA-ineligible, state or contract overtime does not qualify.
Where do I find my qualified overtime on the W-2?
For 2026 through 2028 look at Form W-2, box 12, code TT. For 2025 the form did not require it, so use box 14 if your employer gave one, a pay statement, or the IRS estimation methods.
What if my employer left out or understated the TT amount?
Ask for a corrected Form W-2c. The IRS FAQ says that for years after 2025 you cannot deduct more than the amount reported in box 12 code TT, and a substitute W-2 does not fix it.
Do married couples who file separately get the deduction?
No. The Schedule 1-A instructions say married taxpayers must file a joint return to claim it, and the person who earned the overtime needs a valid Social Security number.
Does it lower my Social Security and Medicare tax?
No. The IRS says the deduction does not exclude overtime from gross income or from wages for employment taxes. It lowers income tax only.
Can a self-employed person claim it?
Overtime reported on Form 1099-NEC or 1099-MISC is on line 14b of Schedule 1-A, but the overtime must still be required by the FLSA. This tool is built for employees. Use the IRS worksheets for 1099 payors.
Is my data saved?
No. The calculation runs in your browser and nothing is sent to our servers. Anything you choose to Save stays in this browser only.
Sources
- Schedule 1-A (Form 1040) 2025, Part III lines 14 to 21 (IRS, form created 11/4/25, read 2026-10-03).
- Form 1040 instructions, Instructions for Schedule 1-A (IRS, 2025 instructions, read 2026-10-03).
- Notice 2025-69: guidance on qualified tips and qualified overtime compensation (IRS, read 2026-10-03).
- Updates to questions and answers about the deduction for qualified overtime compensation, FS-2026-13 (IRS, August 2026, read 2026-10-03).
- Working Families Tax Cuts: tax deductions for working Americans and seniors, FS-2025-03 (IRS fact sheet, read 2026-10-03).
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