How the No Tax on Overtime deduction works
"No tax on overtime" is a catchy name for a rule that is more precise than it sounds. The One Big Beautiful Bill Act, signed in 2025, created a federal income tax deduction for qualified overtime pay for tax years 2025 through 2028. It does not make your overtime disappear from your paycheck, and it does not make all of your overtime tax-free. It lets you subtract a specific slice of your overtime pay from your taxable income when you file. This page explains exactly which slice counts, how the cap and income phaseout work, and how to read the estimate the calculator above produces.
The one idea that matters most: only the premium half counts
Federal law requires most hourly workers to be paid at least one and a half times their regular rate for hours over 40 in a week. That is the familiar "time and a half." The deduction applies only to the extra half, the part of your overtime pay that is above your regular rate. It does not apply to the regular-rate portion of those same hours.
A concrete example makes this clear. Suppose your regular rate is $20 an hour. Your overtime rate is $30 an hour, which is $20 of base pay plus a $10 premium. For every overtime hour you work, only that $10 premium is qualified overtime for the deduction. If you work 100 overtime hours in the year, your qualified premium is 100 times $10, which is $1,000. The IRS describes the qualified amount as "the pay that exceeds their regular rate of pay," or the "half" portion of time and a half. That is why the calculator asks for your regular rate and your overtime hours: it multiplies half of your regular rate by your overtime hours to find the premium, rather than treating your whole overtime wage as deductible.
The cap: $12,500 or $25,000
The deduction is limited. A single filer or head of household can deduct up to $12,500 of qualified overtime premium in a year. A married couple filing jointly can deduct up to $25,000. These are ceilings, not targets. If your premium for the year is below the cap, you deduct the whole premium. If your premium is above the cap, you deduct the cap and the rest is simply not deductible. The cap is on the premium, not on your total overtime pay, so a worker with a high regular rate reaches the cap with fewer overtime hours than a worker with a low rate.
The dollar figures are fixed in the statute and are not adjusted for inflation during the 2025 through 2028 window, so the same $12,500 and $25,000 limits apply in each of those four years unless Congress changes the law.
The income phaseout, step by step
Higher earners get a smaller cap. The cap is reduced by $100 for every $1,000 of modified adjusted gross income (MAGI) above a threshold. For single filers the threshold is $150,000. For joint filers it is $300,000. A partial $1,000 counts as a whole step, so being even one dollar into a new $1,000 band removes another $100 from your cap.
Here is the arithmetic for a single filer with $170,000 of MAGI. That is $20,000 over the $150,000 threshold, which is 20 steps of $1,000. Twenty steps times $100 is a $2,000 reduction, so the $12,500 cap becomes $10,500. Follow the same logic to the end and the single cap reaches zero at $275,000 of MAGI ($125,000 over the threshold, 125 steps, $12,500 removed). The joint cap reaches zero at $550,000. The calculator runs this phaseout for you and shows both the reduced cap and how much of the reduction came from your income.
Who can claim it
The deduction is above the line, which means you can take it whether you claim the standard deduction or itemize. You do not need to itemize to benefit. A few conditions apply. If you are married, you must file a joint return to claim it. The return must include a valid Social Security number for the person claiming the deduction. The pay has to be genuine overtime required under the Fair Labor Standards Act, so a "bonus" your employer labels as overtime, or extra pay that is not tied to hours over the legal threshold, may not qualify. Salaried workers who are exempt from overtime rules generally do not have qualified overtime to deduct, because they are not paid an FLSA overtime premium in the first place.
How your employer reports it
For 2025 and beyond, qualified overtime is being tracked so that the premium amount can be reported to you and to the IRS, generally through your Form W-2 or an equivalent statement. When you file, you report the qualified overtime premium and the software or form applies the cap and phaseout. Keep your final pay stub of the year and your W-2, because the premium figure they show is the number your return should use. This calculator is a planning aid: it helps you estimate the deduction before your official forms arrive and helps you sanity check the forms once they do.
Reading the calculator output
The result breaks your estimate into plain lines. The first line is your qualified overtime premium for the year, with a rough per-week figure so you can connect it to a single paycheck. The second line is the deduction cap that actually applies to you, which is the full statutory cap unless your income triggered the phaseout, in which case it shows the reduced cap and the amount the phaseout removed. The third line is the deduction you can claim, which is the smaller of your premium and your applicable cap. The final estimate line multiplies that deduction by the marginal tax rate you selected to approximate the federal income tax you would save.
That last number deserves a caveat. A deduction reduces the income you are taxed on; it is not a dollar-for-dollar credit. Its cash value is the deduction times your marginal rate. If you deduct $10,000 and your top dollar is taxed at 22 percent, the deduction is worth about $2,200 to you, not $10,000. The calculator uses the single marginal rate you pick, which is a first-order estimate. Your real saving can differ because a large deduction can drop part of your income into a lower bracket, and because state taxes, credits, and other deductions interact in ways a single-rate estimate cannot capture.
A worked scenario from a real paycheck
Consider a maintenance technician who earns $22 an hour and worked 250 overtime hours over the year, filing single with $60,000 of MAGI. Half of $22 is $11, and $11 times 250 hours is a $2,750 premium. That is well under the $12,500 cap and the income is far below the phaseout threshold, so the full $2,750 is deductible. At a 22 percent marginal rate the deduction is worth about $605. Now change one thing: raise the overtime to 800 hours at a $40 regular rate. Half of $40 is $20, and $20 times 800 is a $16,000 premium. That is above the $12,500 single cap, so the deduction is limited to $12,500 and the remaining $3,500 of premium is not deductible. Same rule, very different outcome, which is why estimating with your own numbers is worthwhile.
Common mistakes to avoid
The most frequent error is deducting all overtime pay instead of only the premium half. If you put your entire overtime wages into the deduction, you will roughly double the real figure and overstate your refund. A second mistake is forgetting the phaseout: a household near or above the thresholds should not assume the full cap. A third is mixing up a deduction with a credit, and expecting the headline number to land in your bank account. Finally, remember the joint-filing and valid-SSN conditions, and that the overtime must be true FLSA overtime, not any pay an employer informally calls overtime.
Why this runs in your browser
Everything on this page is calculated on your own device. When the page loads, the calculation logic loads with it, so nothing you type is sent to a server or stored anywhere. That is a privacy benefit, because your pay and income never leave your computer, and a speed benefit, because each estimate is instant. It also means the tool keeps working if your connection drops after the page has loaded.
An estimate, not tax advice
This calculator is designed to give you a clear, honest estimate of the 2026 No Tax on Overtime deduction so you can plan. It is not tax advice, it does not file anything, and it cannot see the rest of your return. Tax situations vary, the law can change, and only your official forms and, where needed, a qualified tax professional can tell you the final figure. Use the estimate to understand the rule and to check that your filed numbers look right, not as a substitute for the forms themselves.