What Is the Income Limit for No Tax on Overtime?
The no tax on overtime deduction starts phasing out at $150,000 of modified adjusted gross income for single filers and $300,000 for married filing jointly. Above those thresholds, the maximum deduction shrinks by $100 for every $1,000 of additional MAGI. Because the cap is $12,500 for single filers and $25,000 for joint filers, the deduction disappears entirely at $275,000 MAGI single and $550,000 joint. There is no minimum income requirement, but you need a Social Security number, and married workers must file jointly to claim it. Worked example: a single nurse with $170,000 MAGI is $20,000 over the threshold, so her maximum deduction drops by $2,000, from $12,500 to $10,500. If she earned $9,000 in qualified overtime premium, she still deducts the full $9,000 because it sits below her reduced cap.
Where the numbers come from
These thresholds are set by the One Big Beautiful Bill Act and confirmed on the IRS's official deduction summary: a maximum annual deduction of $12,500 ($25,000 for joint filers) that "phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)." The reduction rate is $100 of cap lost per $1,000 of MAGI (or part of $1,000) over the line, and the figures are not indexed for inflation, so the same limits apply for every year the deduction exists, 2025 through 2028. Note what phases out: the cap, not your premium. Your deduction is always the smaller of your qualified overtime premium and your reduced cap.
Phaseout schedule at common income levels
| Single MAGI | Max deduction | Joint MAGI | Max deduction |
|---|---|---|---|
| $150,000 or less | $12,500 | $300,000 or less | $25,000 |
| $170,000 | $10,500 | $340,000 | $21,000 |
| $200,000 | $7,500 | $400,000 | $15,000 |
| $240,000 | $3,500 | $480,000 | $7,000 |
| $275,000 or more | $0 | $550,000 or more | $0 |
The overtime deduction calculator applies this schedule automatically: enter your filing status, hourly rate, overtime hours, and MAGI, and it reports your reduced cap, your allowed deduction, and an estimated tax saving at your marginal rate.
What counts as MAGI here
Modified adjusted gross income for this deduction is your adjusted gross income with certain foreign income exclusions added back. For most wage earners with no foreign income, MAGI simply equals AGI: the bottom-line income figure on your Form 1040 after above-the-line adjustments. That detail creates a small planning lever. Pre-tax contributions to a traditional 401(k) or an HSA lower your AGI, which can pull your MAGI back toward the threshold and preserve more of your cap. Confirm any strategy with a professional before relying on it.
A second worked example, on the joint side
A married couple files jointly with $320,000 of MAGI. They are $20,000 over the joint threshold, so their cap falls by $2,000, from $25,000 to $23,000. One spouse earned $9,600 of qualified overtime premium during the year. Since $9,600 is well under the $23,000 reduced cap, they deduct all of it, and at a 24% marginal rate the deduction is worth roughly $2,304. Contrast that with a single filer at $290,000 MAGI: she is $140,000 over her threshold, the phaseout wipes out her entire $12,500 cap, and her deduction is $0 regardless of how much overtime she worked.
Requirements that have nothing to do with income
Two non-income rules can disqualify high and low earners alike. The return must include a valid Social Security number for the claiming taxpayer, and a married worker must file jointly; married filing separately gets nothing. The deduction is above the availability line in one helpful sense: you can claim it whether you itemize or take the standard deduction. And remember the pay itself must qualify, which is the FLSA half-time premium; see who qualifies for the overtime deduction for the eligibility side and the salaried employee guide if you are on a salary.
Frequently asked questions
Is the limit based on my overtime income or my total income?
Total income. The phaseout looks at your whole modified adjusted gross income, including regular wages, overtime, investment income, and a spouse's earnings on a joint return. Your overtime premium is what you deduct; your total MAGI is what shrinks the cap.
Which year's income does the phaseout use?
The same tax year you claim the deduction. Your 2026 MAGI governs your 2026 deduction when you file in early 2027. A raise or bonus late in the year can therefore reduce the cap for overtime you earned months earlier.
Does overtime pay itself push me over the threshold?
It can. Overtime is part of MAGI, so heavy overtime both creates the premium you deduct and nudges your income toward the phaseout line. For most workers the trade is still clearly favorable: each extra $1,000 of income costs at most $100 of cap.
Why is my paycheck unchanged even though I am under the limit?
Because the benefit arrives on your tax return, not in payroll. Our guide to why overtime is still being taxed explains the withholding mechanics.
This page is general information, not tax advice. Phaseout math depends on your exact MAGI, so verify your numbers on your return or with a qualified professional.