No Tax on Overtime Calculator

What counts as "qualified overtime"

Only the extra half of time-and-a-half pay that the Fair Labor Standards Act requires is deductible. The FLSA requires overtime at no less than one and a half times the regular rate for hours over 40 in a workweek, so for every overtime hour you can deduct half your regular rate — not the full 1.5×.

A workweek is a fixed, recurring period of 168 hours that need not start on Monday, and hours cannot be averaged across two weeks. Working 50 hours one week and 30 the next still produces 10 overtime hours in the first week.

• Counts: the 0.5× premium on hours over 40 in a workweek, paid to an employee covered by the FLSA and reported by the employer.
• Does not count: the 1.0× "straight-time" part of each overtime hour, which is ordinary wages.
• Does not count: overtime paid only because of a state law or contract — daily overtime after 8 hours, weekend or holiday premiums, or double time — beyond what the FLSA itself requires. The FLSA does not require extra pay for Saturdays, Sundays or holidays as such.
• Does not count for most salaried exempt employees, because the FLSA does not require them to be paid overtime in the first place.

Three worked examples

Each example assumes a 40-hour base week for 52 weeks plus the overtime shown, and estimates the 2026 federal income tax saved. Social Security and Medicare (7.65%) still apply to every overtime dollar.

How the cap and phase-out work

The deduction is capped at $12,500 per return, or $25,000 on a joint return. The nurse in the table earns more premium than the single-filer cap, so the deduction stops at $12,500.

Above $150,000 of modified AGI ($300,000 joint), the calculator reduces the deduction by $100 for each $1,000 of income over the threshold, so a single filer’s maximum deduction is gone by about $275,000.

Because this is a deduction rather than a credit, the saving equals the deductible amount times your marginal tax rate. A worker in the 12% bracket saves 12 cents per deductible dollar; one in the 22% bracket saves 22 cents.

Eligibility rules that trip people up

• You must include a valid Social Security number on the return.
• Married couples must file jointly to claim it; married filing separately is not allowed.
• The deduction applies to tax years 2025 through 2028 only, unless Congress extends it.
• The IRS granted transition relief for tax year 2025 on the new employer reporting rules, so check how your employer reports the premium and keep your final pay stub for each year.
• It does not reduce Social Security or Medicare tax, and state income tax treatment depends on your state.

Getting the benefit in your paycheck instead of at tax time

Employers still withhold federal tax on overtime as if it were fully taxable, so by default the saving shows up as a bigger refund or smaller balance due. If you work steady overtime and would rather have the money during the year, you can include the expected deduction on the Deductions Worksheet for Step 4(b) of Form W-4, which lowers withholding. Recheck with the IRS Tax Withholding Estimator if your hours change.