How to use the no tax on overtime calculator
- Pick the tax year and your filing status, and enter your modified adjusted gross income (MAGI): for most people the adjusted gross income on 2025 Form 1040, line 11a, overtime included.
- Choose what you know about your overtime. Hours and rate: the overtime hours you worked in the year and your regular hourly rate. Total overtime pay: everything you were paid for those hours, from a pay stub or payroll summary. The premium: the qualified amount itself, if your W-2 (box 12, code TT, from 2026) or your employer gives it.
- Pick the overtime rate you’re paid (time and a half, double time…). On a joint return, add your spouse’s qualified overtime.
- Read the deduction and the estimated tax saving, then the lines under them: the pay that doesn’t count, the phase-out table for your income and how to report it for that year.
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Only the “half” is deductible
Section 225 of the tax code, added by Pub. L. 119-21 on July 4, 2025, lets you deduct “qualified overtime compensation”: overtime pay the Fair Labor Standards Act (FLSA) requires, to the extent it is above your regular rate. Under the FLSA’s general rule a covered, non-exempt employee gets at least one and a half times the regular rate for hours over 40 in a workweek. The “one” is ordinary pay for those hours and stays taxable; the “half” is what you can deduct.
An example: 260 overtime hours at a regular rate of $28, paid at time and a half, is $10,920 of overtime pay. $7,280 of it is the regular rate for those hours and $3,640 is the premium, so $3,640 is the deduction (before any phase-out). The IRS’s own shortcut gives the same answer: at time and a half, total overtime pay divided by 3.
If you’re paid more than time and a half, only the half the FLSA requires counts. At double time the second extra half is a premium beyond the law, like overtime paid only under state rules or a union contract, or to an employee the FLSA exempts. Weekend or holiday premiums count only when they’re for hours over 40 that week.
Limits and phase-out
The deduction is capped at $12,500 a year, or $25,000 on a joint return for both spouses together. Above $150,000 of MAGI ($300,000 joint) it shrinks by $100 for each full $1,000, so the full $12,500 is gone at $275,000 and $25,000 at $550,000 joint. Married couples filing separately can’t claim it, and the person who earned the overtime needs a Social Security number valid for work.
The deduction is for federal income tax. Social Security and Medicare are still withheld on every overtime dollar, it doesn’t lower your AGI, and your state may tax overtime as before. You can claim it whether you take the standard deduction or itemize.
Reading the estimated saving
The saving is worked out from the federal brackets for the year you picked. By default your taxable income is MAGI minus the standard deduction; the tax is figured with and without the deduction, so it is right even when the deduction crosses from the 22% into the 12% bracket. If you itemize or have other deductions, enter your taxable income or pick your bracket instead. It is a federal estimate only, without credits.
If you also earn tips, the no tax on tips calculator works out that separate deduction. The time card calculator adds up weekly hours and overtime, and the pay period calendar lays out your paydays.
Sources, checked October 18, 2026: Pub. L. 119-21, section 70202 (IRC section 225); IRS, 2025 Schedule 1-A (Form 1040) and its instructions in the 2025 Form 1040 instructions (methods and examples for figuring qualified overtime); IRS, 2026 General Instructions for Forms W-2 and W-3 (code TT); US Department of Labor, Fact Sheet #54. Brackets: Rev. Proc. 2024-40 and 2025-32.