Calculator
Qualified overtime deduction
Estimate the deduction and the federal income tax it saves.
Overtime deduction$5,000about $600 less federal income tax at 12%
| Qualified overtime (½ × $25.00 × 8 h × 50 wk) | $5,000 |
|---|---|
| Cap (single, HOH) | $12,500 |
| Phase-out reduction | $0 |
| Deduction allowed | $5,000 |
| Federal tax saved (estimate) | $600 |
Social Security, Medicare and most state income taxes still apply to all overtime pay. The deduction is claimed on Schedule 1-A of your federal return.
What counts as qualified overtime
Qualified overtime compensation is the part of FLSA-required overtime pay above your regular rate[sec225]. If you earn $25 an hour and get $37.50 for an overtime hour, $12.50 is qualified; the other $25 is ordinary wages.
- Only FLSA overtime. Hours over 40 in a workweek for non-exempt employees. Overtime paid only because of a state law (such as California's daily overtime), a union contract or company policy is not required by the FLSA and does not count.
- Only the premium. With double time, the deduction is still limited to the half-time premium the FLSA requires.
- Who can claim. You need a valid Social Security number, and married couples must file jointly.
- Years. Tax years 2025 through 2028. The law ends the deduction for years beginning after December 31, 2028.
The cap and the phase-out
The deduction is capped at $12,500 ($25,000 joint) and shrinks by $100 for each full $1,000 of modified AGI above $150,000 ($300,000 joint). Schedule 1-A drops any partial thousand before multiplying[sch1a].
| Modified AGI | Reduction | Limit | Deduction |
|---|---|---|---|
| $100,000 | $0 | $12,500 | $5,000 |
| $150,000 | $0 | $12,500 | $5,000 |
| $155,000 | $500 | $12,000 | $5,000 |
| $175,000 | $2,500 | $10,000 | $5,000 |
| $200,000 | $5,000 | $7,500 | $5,000 |
| $250,000 | $10,000 | $2,500 | $2,500 |
| $275,000 | $12,500 | $0 | $0 |
A single filer loses the whole deduction at $275,000 of modified AGI, a joint return at $550,000.
How the deduction reaches your paycheck
The deduction lowers income tax on your return. It does not change Social Security or Medicare, which still take 7.65% of every overtime dollar, and most states tax overtime as usual. Your paycheck only changes if you update Form W-4: the 2026 W-4 lets you include the new deductions in Step 4(b), which lowers withholding for the rest of the year[p15t]. The IRS says employers cannot reduce withholding for the deduction on their own; you have to submit the new W-4[fs2613].
ReportingFor 2025, employers did not have to report overtime separately, so Notice 2025-69 let workers use box 14 of Form W-2, a separate statement or a reasonable estimate[n2569]. From 2026, the deduction is limited to the amount on Form W-2, box 12, code TT; ask for a corrected W-2 if it is wrong.
Worked example
Dana earns $25 an hour and works 48 hours a week for 50 weeks. Overtime pay is 8 × $37.50 = $300 a week; the qualified premium is 8 × $12.50 = $100 a week, or $5,000 for the year. With $70,000 of modified AGI she is under the $150,000 threshold, so the full $5,000 is deductible. In the 12% bracket that is $600 less federal income tax. FICA on the full $15,000 of overtime pay is still $1,147.50.
Count the overtime hours with the time card calculator. To work out the overtime pay itself, use the time and a half calculator; to see the check after withholding, use the paycheck calculator in hourly mode or your state page, for example the California paycheck calculator.
Frequently asked questions
Is overtime tax free now?
Not entirely. From 2025 to 2028 you can deduct the overtime premium (the half in time and a half), up to $12,500 or $25,000 joint, from federal taxable income. Overtime is still subject to Social Security, Medicare and usually state income tax.
How much tax will I save with no tax on overtime?
Multiply the deductible premium by your federal tax bracket. A $5,000 premium saves $600 in the 12% bracket and $1,100 in the 22% bracket.
Does California daily overtime qualify for the deduction?
Only the part the FLSA also requires. Hours over 8 in a day that do not push the week past 40 are paid under state law, so their premium is not qualified overtime.
Do I need to do anything to get the deduction?
Claim it on Schedule 1-A with your federal return. To get the benefit in each paycheck instead, give your employer a new 2026 Form W-4 with the deduction in Step 4(b).
Sources
- 26 U.S. Code § 225, Qualified overtime compensation
- Schedule 1-A (Form 1040) 2025, Additional Deductions (Part III, No Tax on Overtime)
- Notice 2025-69, Guidance for individual taxpayers who received qualified tips or qualified overtime compensation in 2025
- FS-2026-13, Updates to questions and answers about the new deductions for qualified tips and overtime
- Publication 15-T (2026), Federal Income Tax Withholding Methods