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No Tax on Overtime

What the 2025 law actually does — and what it does not.

The short answer

Overtime is not tax-free. The One Big Beautiful Bill Act, signed July 4, 2025, created a federal income tax deduction for qualified overtime compensation — the 0.5x premium above your regular rate that the Fair Labor Standards Act requires on time and a half, and nothing else. If you earn $20/hour and $30/hour on overtime, the deductible part is the extra $10, not the $30. It is capped at $12,500 a year ($25,000 joint), phases out above $150,000 of modified AGI ($300,000 joint), runs for tax years 2025–2028, and is claimed on Schedule 1-A whether or not you itemize. Social Security and Medicare tax still apply to every overtime dollar.

How close does a real schedule get to the cap?

We ran the cap against every wage this site publishes a page for — 31 hourly rates from $12 to $50 — at 10 overtime hours a week for 50 weeks, which is a heavy year of overtime. Exactly 1 of 31 reaches the $12,500 cap: $50/hour. At the grid's median wage of $27/hour that schedule produces $6,750 of qualified premium — you would need 18.5 overtime hours every week for 50 weeks to max the deduction. The cap is not the binding constraint for most hourly workers; the amount of overtime actually worked is.

Computed at build time from this site's wage registry and the statutory cap — not an estimate.

Estimate your deduction →

Enter your rate, overtime hours and filing status to see your qualified premium, your capped deduction and what it saves you.

The rules, one question at a time

Deduction, not exemption — why the difference matters

A tax exemption would mean the money never gets taxed. A tax deduction reduces the income your tax is calculated on, so what it saves you depends on your marginal rate. Deducting $5,000 of overtime premium in the 22% bracket saves about $1,100 — real money, and considerably less than “no tax on overtime” sounds like. And it only touches federal income tax: Social Security and Medicare are withheld on your full overtime, and unless your state has passed its own conforming law, your state still taxes all of it.

What counts as qualified overtime

Only overtime required by section 7 of the Fair Labor Standards Act — and only the part that exceeds your regular rate. Two common situations that do not generate a qualified amount on their own: a holiday or weekend premium your employer pays by policy, and overtime that exists only because of a contract, a union agreement, or a state daily-overtime rule that goes beyond the FLSA. Several states do require daily overtime — see overtime rules by state — but the extra hours those rules create are not automatically FLSA overtime for this deduction. If you work a holiday shift, the holiday pay pages explain why that premium usually sits outside this deduction.

The income limits in one line

The $12,500 limit drops by $100 for every $1,000 of modified AGI above $150,000. Run that to its conclusion and the deduction reaches zero at $275,000 of MAGI single, or $550,000 joint. The income limits page has the full computed phase-out chart.

Where the number comes from at tax time

This changed between the first two years of the law. For tax year 2025, employers were not required to report qualified overtime separately, and many payroll providers put it in W-2 box 14 with a label like “FLSA OT Prem”. Starting with tax year 2026, separate reporting is required in W-2 box 12, code TT. A calculator is for planning — deciding whether the extra shifts are worth it. The figure your employer reports is what goes on the return. See how to claim it.

Work out your own number

Get your gross overtime the normal way with the time and a half calculator or the overtime calculator, then size the deduction on the no tax on overtime calculator. For a single wage, the per-wage pages show the rate math for every rate from $12 to $50 an hour.

Sources

Retrieved 2026-09-06. General information, not tax advice. Rules for 2025–2028 can change; check IRS.gov or a tax professional before you file.

No tax on overtime FAQ

Is overtime really not taxed now?
No — that name oversells it. The One Big Beautiful Bill Act created a federal income tax DEDUCTION for qualified overtime compensation, and only the premium portion qualifies: the extra 0.5x above your regular rate that the FLSA requires on time and a half. Your whole overtime check is still taxable income. Social Security and Medicare still come out of all of it, withholding still happens on your paycheck, and most states still tax the full amount.
How much can I actually deduct?
Up to $12,500 a year ($25,000 on a joint return), and only as much qualified overtime premium as you actually earned. Reaching the cap takes more overtime than most people work: across the 31 hourly wages this site covers, only $50/hour reaches $12,500 at 10 overtime hours a week for 50 weeks.
Which tax years does it cover?
Tax years 2025 through 2028. The law was signed July 4, 2025 but applies retroactively to overtime earned from January 1, 2025. Under current law it expires after the 2028 tax year unless Congress extends it.
Do I need to itemize?
No. The deduction is available whether you itemize or take the standard deduction. You claim it on Schedule 1-A (Additional Deductions), attached to your Form 1040. You do need a valid Social Security number, and if you are married you must file jointly.
Why has my paycheck not changed?
Because this is a deduction you claim when you file, not a payroll exemption. Employers generally keep withholding tax on overtime as usual, so the benefit shows up as a smaller tax bill or a bigger refund at filing time rather than as a fatter weekly check.