No Tax on Overtime Examples & How to Calculate It

Four worked examples

Federal income tax savings shown at a 22% marginal rate. Every figure is computed from the statutory parameters, not estimated.

Situation	Schedule	Gross OT pay	Qualified premium	Deduction	Saves (22%)
Part-time overtimeA few extra shifts through a busy season.	$18/hr · 4 hrs/wk · 30 wks	$3,240.00	$1,080.00	$1,080	$238
Steady weekly overtimeFive hours most weeks — the most common real pattern.	$22/hr · 5 hrs/wk · 52 wks	$8,580.00	$2,860.00	$2,860	$629
Heavy overtime, hits the capEnough premium to run past the statutory limit.	$40/hr · 15 hrs/wk · 50 wks	$45,000.00	$15,000.00	$12,500capped, $2,500 unusable	$2,750
Two earners over the thresholdJoint filers whose MAGI has entered the phase-out.	$45/hr · 12 hrs/wk · 50 wksjoint	$40,500.00	$13,500.00	$9,500phase-out cut $4,000	$2,090

Notice the third row: earning more overtime premium than $12,500 does not increase the deduction. And the fourth: a joint MAGI of $340,000 is $40,000 past the threshold, which removes $4,000 of an otherwise full $25,000.

The double-time case, worked exactly as the IRS works it

A generous employer does not generate a bigger deduction. FS-2026-13 uses this example: $20 an hour, 50 hours in the workweek, employer pays double time on the 10 overtime hours.

Straight-time portion of those hours: $200 — ordinary wages.

Premium the employer actually paid: $200 (a full 1x extra).

Premium the FLSA required: $100 (the 0.5x).

Qualified overtime compensation: $100. The other $100 is taxable like any other wage.

The same logic applies to a union contract, a state daily-overtime rule, or a weekend premium: only the amount minimally necessary to satisfy section 7 of the FLSA is qualified. See the double time calculator for the pay side of this.

The formula, written out

Qualified overtime compensation = regular rate × 0.5 × FLSA overtime hours. The IRS states it per workweek — hours over 40 in that workweek, times one-half, times your regular rate for that workweek — and the year is the sum of the weeks. Annualising it the way the examples above do is a planning shortcut that assumes a steady schedule and a steady rate. If your rate changed mid-year, or your overtime is lumpy, the weekly computation is the accurate one.

One subtlety worth knowing: your “regular rate” is not always your base hourly rate. Under the FLSA it includes most non-discretionary pay — production bonuses, shift differentials, commissions — spread across the hours you worked. A non-discretionary bonus can therefore raise both your overtime pay and your qualified premium above what your base rate alone would suggest.

How much you get back is not the deduction

This is where the name misleads people most. A deduction of $2,860 does not put $2,860 in your pocket. It removes $2,860 from the income your federal tax is computed on, so it is worth your marginal rate: $343 at 12%, $629 at 22%, $686 at 24%. And it only touches federal income tax — Social Security and Medicare are still withheld on every overtime dollar, and unless your state passed its own conforming law, your state still taxes all of it.

How much overtime does it take to reach the cap?

More than most people work. At the median wage on this site's grid, $27 an hour, you would need 18.5 overtime hours every week for 50 weeks to reach $12,500. At $30 an hour it takes 16.7 hours a week; at $50 an hour, 10. Across all 31 wages this site publishes, only 1 reaches the cap on a 10-hour-a-week, 50-week schedule. For most hourly workers the cap is irrelevant; the binding constraint is how much overtime there is to work.

Check your own numbers

Run your rate and hours through the no tax on overtime calculator to get the deduction and the tax saving together, or start from gross pay with the time and a half calculator. For a single rate, the per-wage pages show the rate math from $12 to $50 an hour. If the result surprises you, check whether you qualify and the income limits before assuming the figure is yours.

Calculating it — FAQ

How do you calculate the no tax on overtime deduction?

Multiply your regular hourly rate by 0.5, then by your overtime hours for the year. That is your qualified overtime compensation — the "half" of time and a half. Cap it at $12,500 ($25,000 joint), then subtract $100 for each full $1,000 of modified AGI above $150,000 ($300,000 joint). At $22/hour and 5 overtime hours a week for 52 weeks: $22 × 0.5 × 5 × 52 = $2,860 deductible.

No tax on overtime — how much will I get back?

Your deduction multiplied by your marginal tax rate, not the deduction itself. A deduction reduces the income you are taxed on; it is not a refund. $2,860 of qualified overtime at a 22% marginal rate is worth about $629 in federal income tax. In the 12% bracket the same deduction is worth about $343. It reduces your tax bill, so it arrives as a smaller balance due or a larger refund when you file — not as a bigger paycheck.

Does double time count for no tax on overtime?

Only the part the FLSA required counts, which is still the 0.5x. The IRS works this exact case in FS-2026-13: at $20/hour working 50 hours, an employer paying double time hands over $200 of premium for the 10 overtime hours, but only $100 of that was required by section 7 of the FLSA. So $100 is qualified overtime compensation and the other $100 is ordinary taxable wages. Paying above the legal minimum does not enlarge the deduction.

Is the deduction based on my overtime pay or just the premium?

Just the premium. In the $22/hour example the gross overtime pay is $8,580 for the year, but the deductible qualified overtime compensation is $2,860 — about 33% of it. The straight-time portion of an overtime hour is ordinary wages, because you would have been paid that rate for a regular hour too.

Can I use my own calculation on my tax return?

For tax year 2026 and later, no. You may only deduct qualified overtime compensation your employer separately reported in W-2 box 12, code TT. These examples are for planning — deciding whether the extra shifts are worth it, and checking whether the figure on your W-2 looks right. If it looks wrong, the fix is a corrected W-2, not your own arithmetic.

No Tax on Overtime Examples