Estimate your 2025 or 2026 'No Tax on Overtime' deduction under the OBBBA — the qualifying premium, the cap, the income phase-out, and the refund it adds.
Your FLSA regular rate — base pay plus shift differentials and non-discretionary bonuses, not just your base rate.
Hours beyond 40 in a workweek. Daily overtime required only by state law does not count.
Everything reported on the return, overtime included — and both spouses' income if you file jointly.
401(k), HSA and similar deferrals. They lower the MAGI the phase-out is measured against.
The OBBBA deduction applies to tax years 2025–2028. It is claimed when you file; FICA and most state taxes still apply.
| Item | Value |
|---|---|
| Deduction cap (single / head of household) | $12,500 |
| Deduction cap (married, jointly) | $25,000 |
| Phase-out starts (single) | $150,000 |
| Phase-out starts (jointly) | $300,000 |
| Employer reporting | W-2 box 12, code TT |
| Claimed on | Schedule 1-A (Form 1040) |
| Tax years | 2025–2028 |
Estimate only, not tax advice. Applies to federal income tax for FLSA overtime-eligible employees, tax years 2025–2028. Confirm details with the IRS or a tax professional.
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The One Big Beautiful Bill Act created a federal 'No Tax on Overtime' deduction (Internal Revenue Code section 225) for tax years 2025 through 2028. Despite the name, overtime is not tax-free: the deduction covers only the premium 'half' of time-and-a-half, it is capped at $12,500 ($25,000 on a joint return), it shrinks once your income passes $150,000 ($300,000 jointly), and Social Security, Medicare and most state taxes still come out of every overtime dollar. Because your employer keeps withholding as usual, the benefit shows up as a larger refund or a smaller balance due at filing rather than in your paycheck. This calculator works out the qualifying premium, applies the cap and the phase-out, and shows the refund the deduction actually adds — plus what is still owed.
The deduction lets FLSA overtime-eligible employees subtract qualified overtime from federal taxable income. The IRS defines qualified overtime for each workweek as hours over 40 multiplied by one-half of your FLSA regular rate — the extra 'half' in time-and-a-half, never the whole overtime cheque. If your regular rate is $30 an hour and overtime pays $45, only the $15 premium counts. Two limits then apply: a $12,500 cap ($25,000 on a joint return), and a reduction of $100 for every $1,000 of modified adjusted gross income above $150,000 ($300,000 jointly). It is available whether you itemise or take the standard deduction, it is claimed on Schedule 1-A of Form 1040, and it never reduces Social Security, Medicare or state income tax.
No Tax on Overtime Formula
Nurses, trades, manufacturing and logistics workers who log steady overtime.
Police, fire and EMS personnel, whose overtime is often set under FLSA section 207(k).
See the after-tax value of picking up more overtime before you commit to it.
Employers were excused from reporting qualified overtime for 2025, so many W-2s show nothing.
Compare the qualified overtime in box 12, code TT with what you think you earned.
See how the phase-out bites above $150,000 and how 401(k) deferrals push you back under it.
We compute the tax at your taxable income with and without the deduction, so the figure is the refund it really adds.
'No tax on overtime' does not mean tax-free. We show exactly what qualifies and what is still taxed.
Applies the $12,500 / $25,000 cap and the high-income phase-out automatically, so the estimate stays realistic.
Switch tax years to use the right brackets and standard deduction — 2025 returns are still being filed on extension.
Pre-tax contributions lower the income the phase-out is measured against, which can restore a deduction you thought you had lost.
State-law overtime, union-contract overtime and FLSA-exempt salaries are excluded — we say so before you rely on a number.
No — that is the most common misconception. The OBBBA created a federal income-tax deduction for qualified overtime, not an exemption. It covers only the premium 'half' of time-and-a-half, it is capped, it phases out at higher incomes, and Social Security, Medicare and most state taxes still apply. The IRS is explicit that overtime is not excluded from gross income.
Your refund grows by the tax the deduction removes, which is the tax on your taxable income minus the tax on that income less the deduction. That is usually the deduction times your bracket — but when the deduction crosses a bracket boundary the real saving is lower. A single filer with $12,500 deductible at $125,000 of income in 2026 saves $2,814, not the $3,000 that 24 percent would suggest. This calculator computes the exact figure and shows the rate it truly saves.
Up to $12,500 per return if you file single or head of household, and $25,000 on a joint return — but only the qualifying premium counts toward it, and the deduction shrinks by $100 for every $1,000 of modified adjusted gross income above $150,000 ($300,000 jointly).
The IRS computes it per workweek as hours over 40 multiplied by one-half of your FLSA regular rate. That is the extra 'half' in time-and-a-half. The straight-time portion of an overtime hour never counts, and neither does overtime your employer pays voluntarily.
Only the part the federal FLSA requires. California requires time-and-a-half after 8 hours in a day, but the FLSA requires overtime only past 40 hours in a workweek. Overtime paid solely because of a state law or a collective bargaining agreement is not qualified overtime compensation, so those hours produce no deduction.
Only the half-time portion the FLSA requires qualifies. The IRS example: a worker earning $20 an hour works 10 overtime hours paid at double time, receiving $400. The FLSA only required $300, so the qualified overtime is $100 — the 'half' in one-and-a-half — not the $200 premium actually paid.
Not by itself. Your employer must keep withholding on overtime as usual and may not reduce it unless you file an updated Form W-4. The 2026 Form W-4 accounts for the deduction in Step 4(b), so you can claim it through withholding if you prefer the money during the year rather than as a refund.
Yes. The deduction reduces federal income tax only. FICA — 6.2 percent Social Security plus 1.45 percent Medicare — still applies to every overtime dollar, including the premium, and most states still tax it too.
The deduction starts shrinking once modified adjusted gross income passes $150,000 (single or head of household) or $300,000 (joint), dropping $100 for every $1,000 above it. Someone at the full cap is wiped out at $275,000 single or $550,000 joint; if your premium is smaller than the cap, you run out sooner. Pre-tax 401(k) and HSA contributions reduce the income being measured.
You report the qualified overtime from box 12, code TT of your Form W-2 on Schedule 1-A of Form 1040 and complete Part III, which applies the cap and the phase-out. The last line of Part III is your deduction. You need a Social Security number valid for employment, and if you are married you must file jointly.
For 2025 the IRS excused employers from reporting it, so a blank box 12 is expected and you may still claim the deduction. From 2026 onward that relief is gone: you may deduct only what your employer reported in box 12, code TT. If it is missing or wrong, ask for a corrected Form W-2c — a substitute Form 4852 does not satisfy the law.
Tax years 2025 through 2028 under the One Big Beautiful Bill Act. It is scheduled to end after 2028 unless Congress extends it. The $12,500 and $25,000 limits are not indexed for inflation, so they are the same in every one of those years.
No. The IRS states the deduction is available whether you itemize or take the standard deduction, so most hourly workers can claim it on top of the standard deduction.
Anyone who is not an FLSA overtime-eligible employee. That includes exempt executive, administrative and professional staff, outside sales and many computer roles, certain motor-carrier, rail, air, agricultural and seasonal workers, and an owner-employee holding at least a 20 percent equity stake who is active in management. You also need a valid Social Security number, and married filers must file a joint return.