"No tax on overtime" sounds like your whole overtime check is tax-free. It isn't. The new federal deduction covers only the extra half of time-and-a-half, and only for overtime the federal 40-hour rule requires. Social Security, Medicare and most state taxes still apply. For a typical hourly worker it's worth a few hundred to a few thousand dollars a year, which is real money. The calculator below shows your exact number from either your hourly rate or your pay stub, for last year's return or this year's.
Key Takeaways
- Only the premium counts. If you earn $24 an hour and $36 for overtime, $12 of each overtime hour is deductible. The other $24 is taxed like any other pay.
- Caps and phase-out. The deduction tops out at $12,500 a year, or $25,000 on a joint return. It shrinks by $100 for every $1,000 of modified AGI above $150,000 ($300,000 joint).
- The 40-hour rule only. Daily overtime required only by state law (as in California), and premiums from a union contract beyond the federal requirement, don't qualify. Neither does the extra pay in double time.
- Four tax years. It applies to returns for 2025 through 2028, claimed on Schedule 1-A. You get it whether or not you itemize.
- Married? File jointly. A married-filing-separately return gets nothing. You also need a Social Security number that's valid for work.
- Payroll tax stays. The 7.65% for Social Security and Medicare is still taken out of every overtime dollar, and most states still tax it.
- Last year's return. For 2025, figure the amount yourself from pay stubs: one-third of time-and-a-half pay, or one-quarter of double-time pay. From 2026 on, use only the W-2 box 12, code TT amount.
- Don't wait until spring. Enter the expected deduction in Step 4(b) of a new W-4 and the savings show up in each paycheck this year.
No Tax on Overtime Calculator
Choose the return, then either describe your overtime (rate and hours) or type in the numbers from your pay stub or W-2. The result updates as you type, and nothing leaves your browser.
In our testing, the number that surprised people most was how small the qualified share is. Take a single worker earning $24 an hour with 10 overtime hours a week for 50 weeks. They collect $18,000 in overtime pay, but only $6,000 of it qualifies, and the federal saving is $862. That beats the $720 you'd expect from the 12% bracket alone, because the deduction pulls some income back down from the 22% bracket. Run the same schedule for a married worker whose spouse earns $40,000, and the saving is $720. The household never leaves the 12% bracket.
What Counts as Qualified Overtime (and What Doesn't)
The law borrows its definition from the Fair Labor Standards Act. That federal wage law requires pay of at least one and a half times your "regular rate" for hours over 40 in a workweek. The deductible part is that required extra half, nothing more.
The IRS example makes it concrete. A worker earning $20 an hour puts in 50 hours one week, and the employer pays double time, $40 an hour, for the 10 extra hours. That's $400 of overtime pay. Federal law only required time-and-a-half, so the qualified amount is 10 hours × $10 (half of $20) = $100. The other $300 is ordinary taxable pay: $200 is the straight-time part, and $100 is the generosity above the legal minimum.
Three details push your number up or down. First, the "regular rate" isn't always your base wage. Under federal rules it includes shift differentials, non-discretionary bonuses (for attendance, production or safety, say) and most commissions spread over the week. A $24-an-hour nurse with a $3 night differential has a $27 regular rate on those shifts, so the premium is $13.50 an hour, not $12. Second, the workweek is a fixed seven-day period your employer sets. You can't average two weeks together, so 45 hours one week and 35 the next still means five overtime hours. Third, paid time off generally doesn't count as hours worked, so a holiday in an overtime week can mean less qualified overtime than your pay stub suggests.
| Type of pay | Qualifies? | Example | Deductible portion |
|---|---|---|---|
| Time-and-a-half over 40 hrs/week | Yes | $30/hr base, $45/hr overtime | $15 per hour (⅓ of the overtime pay) |
| Double time over 40 hrs/week | Partly | $30/hr base, $60/hr overtime | $15 per hour (¼ of the overtime pay) |
| Daily overtime under state law (e.g., over 8 hrs/day in California) | No | Two 10-hour days in a 36-hour week | $0 — the week never passed 40 |
| Union contract or company-policy premium | No (beyond the federal minimum) | Time-and-a-half for Saturday work in a 38-hour week | $0 |
| Holiday or weekend premium in a 40-hour week | No | Double pay for Thanksgiving | $0 |
| Salaried non-exempt, fluctuating workweek | Yes | Fixed salary plus half-time for extra hours | All of the half-time pay |
| Salaried exempt (manager, professional) | No | Optional "extra hours" bonus | $0 — not FLSA overtime-eligible |
| State or local comp time | Yes, when used or cashed out | Police officer cashes out banked hours | ⅓ of the comp-time pay |
Who Qualifies for the Overtime Deduction
You need three things: you must be overtime-eligible under the FLSA, you must have actually been paid FLSA overtime, and your return must meet the filing rules.
- Overtime-eligible ("non-exempt") workers. That covers most hourly employees in retail, warehouses, manufacturing, health care, trades, trucking that isn't exempt, call centers and restaurants. It also covers salaried workers whose pay stubs show overtime.
- Exempt employees don't qualify. These include executive, administrative and professional staff, outside sales, certain computer professionals, some commissioned retail and service workers, certain transportation workers (such as many interstate truck drivers), and certain seasonal amusement and agricultural workers. So does anyone who owns at least 20% of the business and actively manages it.
- Government workers can qualify. Federal employees can check block 35 of their SF-50: "N" means non-exempt, "E" means exempt. Police, firefighters and hospital staff on special FLSA schedules (the 7(k) work period or the "8 and 80" hospital system) count the premium actually paid under those rules.
- Filing rules. You need a Social Security number valid for work, issued before the return's due date. Married couples must file jointly. If both spouses earned overtime, both premiums count toward the shared $25,000 limit.
Independent contractors usually don't qualify, because the FLSA's overtime rule applies to employees. The IRS does describe one narrow case: a worker who is an employee under the FLSA but treated as a contractor for tax purposes. That worker would see the amount on a 1099-NEC (box 1d) or 1099-MISC (box 14). If you think you've been misclassified as a contractor, that's a bigger issue than this deduction. The Department of Labor's Wage and Hour Division takes complaints for free.
How Much No Tax on Overtime Is Actually Worth
Your saving equals the deduction multiplied by your federal bracket, give or take where your income sits. We ran common schedules through the calculator: 50 weeks of overtime on this year's return, time-and-a-half, in a state with no income tax. For the married column, the spouse earns $40,000.
| Hourly rate | Overtime hours / week | Overtime pay | Qualified premium | Saving, single | Saving, married jointly |
|---|---|---|---|---|---|
| $18 | 5 | $6,750 | $2,250 | $270 | $270 |
| $18 | 10 | $13,500 | $4,500 | $540 | $540 |
| $24 | 5 | $9,000 | $3,000 | $360 | $360 |
| $24 | 10 | $18,000 | $6,000 | $862 | $720 |
| $32 | 5 | $12,000 | $4,000 | $880 | $480 |
| $32 | 10 | $24,000 | $8,000 | $1,760 | $960 |
| $45 | 10 | $33,750 | $11,250 | $2,586 | $2,475 |
| $60 | 10 | $45,000 | $15,000 | $2,525 (capped, phasing out) | $3,300 |
Two patterns stand out. Married workers often save less than single workers on the same overtime, because a joint return's wider brackets keep the household in the 12% bracket longer. And the deduction only cuts income tax you actually owe. A head of household earning $18 an hour with two children and five overtime hours a week saved $0 in our test, because the child tax credit had already erased the federal income tax. The deduction can't add to a refund beyond the tax it removes.
Payroll tax is the other half of the picture. That $24-an-hour worker with $18,000 of overtime still pays $1,377 of Social Security and Medicare tax on it. That's more than the income tax the deduction saves. If someone tells you overtime is "tax-free," this is the part they're leaving out.
How to Claim It on Your Return
The deduction goes on Schedule 1-A of Form 1040, in the overtime section (Part III). Tax software fills it in when you answer its overtime questions, but only if you know your qualified amount. Here's where to find it for each year.
Employers weren't required to report qualified overtime separately for 2025. The IRS waived penalties for that first year, so most 2025 W-2s simply include overtime in box 1. Under IRS Notice 2025-69 you can use any of these, in this order of preference. First, an amount your employer gave you voluntarily, in box 14 of the W-2 or on a separate statement or portal. Second, your pay records: take year-to-date time-and-a-half overtime dollars and divide by three, and take double-time dollars and divide by four. If you had more than one employer, you can use a different method for each. Keep the pay stubs or payroll summary you relied on.
Employers must now report total qualified overtime in box 12 of your W-2, with code TT. You enter the full code TT amount on Schedule 1-A and the form applies the cap and phase-out. Only the W-2 amount can be deducted. If your employer reports too little, you need a corrected W-2c from them. The IRS says you can't fix it yourself with Form 4852. If the W-2 reports too much, use the true amount. So check your last pay stub of the year against what the calculator shows, and raise any gap with payroll in January, before W-2s go out.
Already filed your 2025 return without the deduction? You can amend it with Form 1040-X to pick it up. Amended returns usually take 8 to 16 weeks or longer, so file sooner rather than later. If you're eligible and your software didn't ask about overtime, check Schedule 1-A on the return you filed. If Part III is blank, the deduction wasn't claimed.
Three Worked Examples
These are real calculator runs. Each one shows the steps so you can check the math yourself.
Marisol's final 2025 pay stub shows $57,000 of total wages, $11,880 of it on the "OT 1.5" line. Her W-2 doesn't break out qualified overtime, so she uses the Notice 2025-69 shortcut: $11,880 ÷ 3 = $3,960. She files single. Her taxable income after the $15,750 standard deduction is $41,250, inside the 12% bracket, so the deduction saves her $475. Ohio hasn't adopted an overtime deduction, so her state tax doesn't change. She keeps a copy of that final pay stub with her tax records.
Dev's base rate is $38, and a $3 night differential makes his regular rate $41 on most shifts. He averages eight overtime hours a week for 45 weeks. Overtime pay comes to $22,140, and the qualified premium (half of $41 × 360 hours) is $7,380. As a head of household with one child and about $107,000 of wages, he's in the 22% bracket, so the deduction saves $1,624 in federal tax. Michigan follows the federal deduction for 2026, which adds about $314 at its 4.25% rate. Dev puts $7,380 into Step 4(b) of a new W-4 and sees roughly $62 more in each biweekly check.
Tasha's W-2 shows $82,000 in box 1 and $7,200 in box 12, code TT. Ray's shows $68,000 and $5,400. Filing jointly with two children, their combined qualified overtime is $12,600, well under the $25,000 joint cap. The deduction saves them $2,772 federally, since they're in the 22% bracket. Georgia's new exemption covers up to $1,750 of overtime pay, worth about $87. Had they filed separately, the federal deduction would have been $0.
Get the Savings in Your Paycheck Now
Your employer keeps withholding federal tax on overtime as usual. Withholding only changes if you give them a new W-4, which means the saving otherwise waits until your refund.
The 2026 Form W-4 has a deductions worksheet that now includes the overtime deduction. Add your expected deduction (the "Deduction you can take" figure above) to any other deductions you claim. Enter the total in Step 4(b). For a $24-an-hour worker expecting a $6,000 deduction, that lowers withholding by roughly $720–$862 over the year, or about $28–$33 per biweekly check. If your overtime is unpredictable, enter a conservative figure, maybe half your estimate. Under-withholding can mean a bill in April, while over-withholding only delays money you'd get back anyway. The IRS Tax Withholding Estimator has been updated with the new deductions if you'd rather have it do the math.
Does Your State Tax Overtime?
This is a federal deduction. Most states still tax every dollar of overtime pay unless they've passed their own law.
- No wage tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Overtime is free of state income tax because all wages are.
- Michigan follows the federal overtime deduction on state returns for 2026 through 2028.
- Georgia exempts up to $1,750 of overtime pay starting with 2026 returns, worth about $87 at its 4.99% rate.
- Alabama lets you deduct up to $1,000 of overtime premium for 2026 through 2028, worth about $50. An earlier Alabama exemption for overtime wages expired June 30, 2025.
- Most other states haven't adopted it as of our latest check, and several have debated it. Your state's revenue department is the final word, and each state's rules can change at its next legislative session.
The calculator includes the state saving only for the laws above that we've confirmed. For everyone else it shows $0, which is the cautious assumption. Daily overtime states (California, Alaska, Colorado and Nevada) deserve a second look. Overtime earned only under the daily rule doesn't qualify federally, so your federal amount may be smaller than your pay stub's overtime line suggests.
Where Every Overtime Dollar Goes
Here's $15,000 of time-and-a-half overtime pay for a single filer in the 22% bracket, in a state without an income tax, split by tax treatment.
The math behind that figure: without the deduction, the full $15,000 would cost $3,300 in federal income tax at 22%. With it, $2,200. The $1,100 difference is the deduction's value, about 7.3 cents on every overtime dollar. That's useful, but it's a long way from "no tax." Saving even a little more is easiest through tools that already existed. A traditional 401(k) contribution from overtime pay avoids income tax on the whole contribution, not just a third, though you pay tax later when you withdraw it.
Working Overtime While Collecting Social Security
Many people in their 60s still work hourly jobs, and overtime raises two separate questions for them. First, if you've started Social Security before full retirement age, the earnings test counts overtime as earnings. For 2026, $1 of benefits is withheld for every $2 earned above $24,480, or $1 for every $3 above $65,160 in the year you reach full retirement age. The tax deduction doesn't change that, because Social Security looks at gross wages. Withheld benefits aren't lost, though. They're added back to your monthly check once you reach full retirement age. Second, if you're 65 or older, overtime raises your income toward the $75,000 line where the $6,000 senior deduction starts shrinking ($150,000 for couples). The calculator runs your return with your age included, so both effects show up in the federal saving.
What to Do in Your Situation
Hospitals can use the "8 and 80" system, which pays overtime for hours over 8 in a day or 80 in 14 days instead of 40 in a week. Under the IRS rules, the qualified amount is the premium actually paid under that system. Many nurses also earn shift differentials and incentive pay, which raise the regular rate and therefore the premium. Your W-2 code TT figure should already reflect this from 2026 on. For 2025, the divide-by-three shortcut is fine if your stub shows a single overtime rate.
Public safety departments often use a 7(k) work period (for example, overtime after 212 hours in 28 days for firefighters). The qualified amount is the premium actually paid under that schedule. Comp time works differently: for state and local employees, banked overtime counts in the year you use it as paid leave or cash it out, not when you earn it. The qualified share is one-third of that pay. Cashing out a big comp-time balance at retirement can therefore produce a large deduction in a single year, capped at $12,500.
If you're salaried and non-exempt (your stub shows overtime pay), you qualify just like an hourly worker. Under a "fluctuating workweek" arrangement, your salary already covers straight time for every hour, and each extra hour adds only a half-time premium. That means all of your overtime pay is the qualified premium. If you're exempt, you don't qualify, even if your employer pays for extra hours voluntarily. If you think you've been wrongly classified as exempt, that's a wage question for the Department of Labor.
Each employer runs its own workweek. Twenty-five hours at one job plus twenty-five at another isn't federal overtime, unless the two businesses are legally "joint employers." If one job alone pays you overtime, only that employer's premium counts. Add the code TT amounts from each W-2. The $12,500 cap applies to the total.
Married-filing-separately returns can't claim the overtime deduction at all, and they also lose the tips and senior deductions. If you filed separately for 2025 only out of habit, compare the two ways. A joint amended return (Form 1040-X) can recover the deduction, but you generally can't switch from joint to separate after the deadline.
Above those lines, each $1,000 of modified AGI removes $100 of deduction. That means a 10% surcharge on income in that zone, on top of your bracket. A single filer with the full $12,500 deduction loses it all at $275,000. Contributions to a traditional 401(k) or HSA lower AGI and can keep more of the deduction. When we ran a single worker with $160,000 of wages and $10,000 of qualified premium, the deduction fell to $9,000.
Quick Answers
1Does no tax on overtime apply to the return I filed this year?
Yes. It starts with the 2025 tax year, the return most people filed between January and April 2026. If you filed without it, look at Schedule 1-A of your return. If it's missing and you qualified, a Form 1040-X can claim it. Use the "Last year's return" setting above to see what it's worth.
2How do I calculate the tax saved on my overtime?
Find your qualified premium: half your regular rate times your overtime hours over 40, or one-third of time-and-a-half pay. Cap it at $12,500 ($25,000 joint) and reduce it for income above $150,000 ($300,000 joint). Multiply by your federal bracket, typically 12% or 22%. The calculator does this by running your return both ways, which also catches cases where the deduction drops you into a lower bracket.
3Is overtime taxed at a higher rate than regular pay?
No. Overtime is ordinary wages, taxed at the same rates as the rest of your pay. It often looks higher on a paycheck because withholding is figured as if that big check were your normal pay. The difference evens out on your return.
4Will my employer start reporting it automatically?
From the 2026 tax year on, yes: the qualified amount appears in W-2 box 12 with code TT. It's still worth checking against your own pay records, because only the W-2 figure can be deducted, and a corrected W-2c is the only fix if it's too low.
5Does the deduction lower my Social Security or Medicare tax?
No. It only reduces federal income tax, and state income tax in the few states that follow it. Social Security and Medicare are still taken out of every overtime dollar, which also means the overtime still counts toward your future Social Security benefit.
Why Big Overtime Checks Look Over-Taxed
Pick up a paycheck after a 60-hour week and the federal withholding can look shocking. That's not the overtime being taxed at a special rate. Payroll systems figure withholding as if every paycheck were that size all year, so a double-sized check gets withheld as though you earned double your salary, at a higher bracket. Your actual tax is settled on the return, using your real annual income. Extra withholding from overtime-heavy weeks usually comes back as part of your refund. With the overtime deduction on top, that refund grows further unless you've adjusted your W-4. None of this changes the 7.65% for Social Security and Medicare, which is a flat rate and final.
Stacking It With the Other New Deductions
The overtime deduction is one of four created by the same law, and they stack, each with its own cap. A bartender who works overtime can deduct up to $25,000 of qualified tips and up to $12,500 of overtime premium, but the same dollar can't count as both. A worker 65 or older adds up to $6,000 more for the senior deduction, and a new U.S.-assembled car financed after 2024 can add up to $10,000 of loan interest. All four go on Schedule 1-A and all four sit on top of the standard deduction. The tips and overtime deductions share the same phase-out start ($150,000, or $300,000 joint). The senior deduction starts phasing out lower, at $75,000 single and $150,000 joint. If your overtime pushes income past that point, a 65-plus worker loses $60 of senior deduction for every extra $1,000 earned, which offsets part of the overtime benefit.
Records to Keep and Questions to Ask Payroll
The IRS can ask you to support any deduction, usually within three years of filing. For overtime, keep your final pay stub for each year, any year-end payroll summary, your W-2, and any separate statement from your employer about qualified overtime. If you figured 2025 yourself, write down how: which pay lines you used and whether you divided by three or four. Keep weekly timesheets if your overtime came from a mix of daily and weekly rules, because those show which hours passed 40 in a week.
Worth asking your payroll or HR team in December, before W-2s are printed:
- "Am I classified as non-exempt under the FLSA?" Your offer letter or HR system usually says.
- "What qualified overtime amount will you report in box 12, code TT?" Compare it with the calculator's figure.
- "Does that amount include my shift differentials and bonuses in the regular rate?" If not, the reported premium may be too low.
- "Is any of my overtime paid only under state law or our contract?" Those hours won't be in code TT, and they shouldn't be.
Four Overtime Tax Myths We Hear Most
1"My overtime checks won't have tax taken out anymore."
They will. Employers keep withholding income tax on overtime unless you file a new W-4. Social Security and Medicare always come out. The saving shows up on your return, or in your paycheck through Step 4(b) if you adjust your W-4.
2"Working more overtime will push me into a higher bracket and I'll take home less."
Brackets don't work that way. Only the dollars above a bracket line get the higher rate, so more overtime always means more take-home pay. With this deduction, some of those dollars aren't taxed at all.
3"I have to itemize to get it."
No. It's claimed on Schedule 1-A in addition to the standard deduction. Most people who claim it never itemize.
4"It's permanent."
It covers tax years 2025 through 2028 only. Unless Congress extends it, returns for 2029 won't have it, and withholding set up for it should be revisited then.
Five Mistakes That Shrink (or Inflate) the Deduction
- Deducting all of your overtime pay. This is the most common error, and it overstates the deduction threefold for time-and-a-half workers. Now that employers report code TT on the W-2, a mismatch with your Schedule 1-A is easy for the IRS to spot.
- Using hours instead of dollars for the 2025 shortcut. The one-third rule applies to overtime pay in dollars, not to hours.
- Forgetting differentials and bonuses. They raise the regular rate, and with it the premium. Leaving them out understates what you can deduct, especially for nurses, factory workers on night shift and anyone with production bonuses.
- Counting state-only overtime. California daily overtime or a contract's Saturday premium in a week under 40 hours doesn't qualify, even though it shows up as "OT" on the stub.
- Filing separately out of habit. A married-filing-separately return forfeits the whole deduction. For most couples with overtime, filing jointly is worth hundreds to thousands of dollars more.
What This Calculator Assumes
The hourly method assumes a 40-hour base week for 52 weeks unless you enter your total wages, and the same overtime schedule for each overtime week. Federal savings are figured by running your full return twice, with and without the deduction, using that year's brackets, standard deduction, child credit and senior deduction. That captures bracket crossings and credit interactions instead of multiplying by one rate. State savings appear only for states where we've confirmed a law. The calculator doesn't model the alternative minimum tax, education credits, Marketplace premium credits or itemized deductions. Those rarely change the overtime saving itself, but they do change your total tax.
Based on the One Big Beautiful Bill Act (P.L. 119-21), IRS Notice 2025-69, IRS fact sheet FS-2026-13 (August 2026) and Schedule 1-A instructions, plus state revenue department guidance for Alabama, Georgia and Michigan. Covers federal tax years 2025 and 2026. Calculations run in your browser and nothing you enter is stored on our servers. Estimates are for planning, not tax or legal advice. BudgetSeniors.com is independent and not affiliated with the IRS or the Department of Labor.
Key sources: IRS (Notice 2025-69, FS-2026-13, Schedule 1-A) · U.S. Department of Labor, Wage and Hour Division · Alabama Department of Revenue · Georgia and Michigan revenue departments