How to use this calculator
- Enter your overtime in whichever form you know: your hourly rate and overtime hours, the total overtime pay you received, or the qualified overtime amount your employer reported.
- Choose the tax year and filing status, then enter your adjusted gross income (including the overtime).
- See your savings. We cap the deduction, apply the phase-out, and compare your federal income tax with and without it.
What counts as qualified overtime
The deduction applies to qualified overtime compensation: overtime pay required by section 7 of the Fair Labor Standards Act that exceeds your regular rate of pay. Under the FLSA, non-exempt employees earn at least 1.5 times their regular rate for hours over 40 in a workweek. Only the extra 0.5 counts.
| You earn | Overtime rate | Qualified per OT hour | Not qualified |
|---|---|---|---|
| $20/hr | $30/hr | $10 | $20 (regular pay) |
| $30/hr | $45/hr | $15 | $30 |
| $40/hr, paid double time | $80/hr | $20 (FLSA half-time only) | $60 |
Overtime required only by state law (for example, daily overtime after 8 hours), by a union contract, or paid voluntarily by an employer beyond FLSA requirements generally doesn’t qualify. Exempt salaried employees who aren’t owed FLSA overtime can’t claim it.
For step-by-step instructions using your pay stubs, including bonuses and daily overtime, read how to calculate qualified overtime.
Caps and income phase-out
| Filing status | Maximum deduction | Phase-out begins (MAGI) |
|---|---|---|
| Married filing jointly | $25,000 | $300,000 |
| Single / head of household | $12,500 | $150,000 |
| Married filing separately | Not eligible | |
The deduction is reduced by $100 for each $1,000 of modified AGI above the threshold.
Worked example
Dana is a single warehouse supervisor earning $30 an hour who works about 6 hours of overtime a week for 50 weeks — 300 overtime hours — with an AGI of $72,000 in 2026.
- Overtime pay at 1.5×: 300 × $45 = $13,500. Qualified premium: 300 × $15 = $4,500.
- MAGI is under $150,000, so the full $4,500 is deductible.
- Taxable income drops from $55,900 to $51,400 — all in the 22% bracket — saving about $990.
What the deduction doesn’t do
- It doesn’t reduce Social Security and Medicare taxes on your overtime.
- It doesn’t reduce your AGI, so it won’t help with AGI-based limits such as ACA subsidy income or IRMAA.
- It may not reduce state income tax; states decide whether to follow it.
- It doesn’t change your paycheck withholding automatically — you may see the benefit as a larger refund unless you update Form W-4.
How the calculator works
We use 2025 or 2026 federal brackets and the standard deduction (plus the extra amount for filers 65+), or your itemized deductions if larger. Credits, other income and state taxes aren’t included. This is an estimate, not tax advice.
How to calculate qualified overtime
The federal deduction for overtime, available for tax years 2025 through 2028, doesn’t cover all of your overtime pay. It covers only qualified overtime compensation: the extra “half” in time-and-a-half that the Fair Labor Standards Act (FLSA) requires. Getting that number right is the key to claiming the deduction correctly.
This section shows how to work it out from your pay stubs, what your “regular rate” includes, and which overtime doesn’t count. For how this deduction fits with the others on Schedule 1-A, see Schedule 1-A explained.
The rule in one line
Qualified overtime = 0.5 × your regular rate × your FLSA overtime hours
FLSA overtime hours are the hours you work over 40 in a workweek as a non-exempt employee. The deduction is capped at $12,500 a year, or $25,000 on a joint return, and it phases out at higher incomes.
Step 1: Count your FLSA overtime hours
For each workweek, subtract 40 from the hours you actually worked. Only those hours count, even if your employer pays overtime on other hours.
- Paid time off isn’t hours worked. If you took 8 hours of vacation and worked 44 hours, you have 4 FLSA overtime hours.
- Weeks don’t combine. Working 30 hours one week and 50 the next gives you 10 overtime hours, not zero.
Step 2: Find your regular rate
Your regular rate isn’t always your base hourly wage. Under the FLSA, it generally includes:
- your hourly pay;
- shift differentials;
- non-discretionary bonuses, such as production, attendance or safety bonuses promised in advance;
- commissions.
It generally leaves out discretionary bonuses, gifts, expense reimbursements and certain premium pay for weekend or holiday work.
Example: you earn $25 an hour, work 50 hours in a week, and earn a $100 production bonus that week.
- Regular rate = ($25 × 50 + $100) ÷ 50 = $27.00
- Qualified overtime = 0.5 × $27 × 10 hours = $135
Based on your base rate alone, it would be $125. The bonus raises the qualified amount.
Step 3: Use the shortcut if you’re paid time-and-a-half
If your overtime is paid at exactly 1.5 times your regular rate, the qualified amount is simply one-third of your overtime pay, because the premium is 0.5 out of 1.5.
Example: Jordan earns $28 an hour and works 300 overtime hours in the year, paid at $42 an hour.
- Overtime pay: $42 × 300 = $12,600
- Qualified overtime: $12,600 ÷ 3 = $4,200, the same as $14 × 300 hours
- In the 22% federal bracket, a $4,200 deduction saves about $924 in federal income tax
If you’re paid double time for FLSA overtime hours, only the FLSA half-time premium qualifies. That’s one-quarter of your double-time pay for those hours.
What doesn’t count as qualified overtime?
- State daily overtime in weeks when you don’t work more than 40 hours, such as California’s daily overtime after 8 hours.
- Overtime under a union contract or company policy beyond what the FLSA requires, such as overtime after 8 hours a day or premium pay for weekends.
- The straight-time part of your overtime pay. The “1” in 1.5 is taxed normally.
- “Overtime” paid to exempt salaried employees who aren’t owed FLSA overtime.
Daily overtime example: a worker earning $30 an hour works four 10-hour days and a 6-hour Friday, 46 hours in all. State law requires 8 hours of daily overtime, so the employer pays $120 of overtime premium. For the deduction, only the 6 hours over 40 count: 0.5 × $30 × 6 = $90.
Where to find the numbers
- 2025 returns: many employers didn’t report qualified overtime separately on 2025 Forms W-2. The IRS let employees use reasonable methods, such as pay stubs or a statement from the employer. Add up the overtime premium from your pay stubs, or ask your payroll department for the year’s FLSA overtime premium.
- 2026 and later: employers report qualified overtime on Form W-2 in box 12 with code TT. The first of these W-2s arrive in early 2027. The amount is only the FLSA premium, and it’s reported in full even above the $12,500 deduction cap.
Keep your pay stubs and any employer statement with your tax records, in case the IRS asks how you figured the deduction.
Who can claim the overtime deduction?
- Non-exempt employees who were paid FLSA overtime.
- You need a valid Social Security number.
- Married couples must file jointly. You can’t claim it if you’re married filing separately.
- The deduction shrinks by $100 for every $1,000 of modified AGI above $150,000, or above $300,000 for joint filers.
Phase-out example: a single filer with $4,000 of qualified overtime and a modified AGI of $165,000 is $15,000 over the threshold. That cuts the deduction by $1,500, leaving $2,500.
What the deduction doesn’t do
- It doesn’t reduce Social Security and Medicare taxes, which are still withheld on all your overtime pay.
- It doesn’t lower your adjusted gross income, which matters for some other credits and limits.
- Your state may not follow it. Check your state’s income tax rules.
- You can claim it whether you take the standard deduction or itemize. It goes on Schedule 1-A.
Estimate your deduction and tax savings with the no tax on overtime calculator. If you also earn tips, pay interest on a car loan or are 65 or older, combine everything in the Schedule 1-A calculator.
Sources:
Frequently asked questions
Is all my overtime pay tax-free now?
Does double time count?
Which years does the overtime deduction apply to?
Do I still pay Social Security and Medicare tax on overtime?
Who is eligible?
Where do I find my qualified overtime amount?
Sources
- One, Big, Beautiful Bill provisions — no tax on overtime — Internal Revenue Service
- Fact Sheet #23: Overtime pay requirements of the FLSA — U.S. Department of Labor, Wage and Hour Division
- Public Law 119-21 (H.R. 1), One Big Beautiful Bill Act — Congress.gov