No Tax on Overtime Calculator (2025–2028)
Under the One Big Beautiful Bill Act, workers can deduct the premium half of FLSA overtime pay from federal taxable income for tax years 2025–2028 — up to $12,500 (single) or $25,000 (married filing jointly), phasing out above $150,000 / $300,000 of income. Example: at $25/hour with 10 overtime hours a week, the premium is $6,500 a year, worth about $1,430 of tax savings in the 22% bracket.
Estimate your overtime deduction
The rule, in plain words
When you work more than 40 hours in a week, federal law (the FLSA) usually requires your employer to pay at least time-and-a-half. That pay has two parts: your normal rate (1.0×) and a premium (the extra 0.5×). Only the premium part is deductible. If you earn $25/hour and work 10 overtime hours, you are paid $375 for those hours, but only $125 of it (10 × $12.50) counts toward the deduction.
- Cap: $12,500 of premium per year ($25,000 married filing jointly).
- Phase-out: the cap falls by $100 for each $1,000 of modified AGI above $150,000 (single) / $300,000 (joint); it reaches $0 at $275,000 / $550,000.
- Years: tax years 2025 through 2028 only.
- Conditions: you need a Social Security number; married taxpayers must file jointly; the deduction works whether or not you itemize.
- Still taxed: overtime pay remains fully subject to Social Security and Medicare tax, and usually to state income tax.
- Only FLSA premium counts: extra premiums paid only because of a union contract, company policy or a state daily-overtime rule generally do not qualify (for 2025 the IRS allows reasonable estimates while reporting catches up — see the FAQ).
Worked example
Single filer, $25/hour, 10 overtime hours every week (520 a year), total income $80,000:
| Overtime premium (0.5 × $25 × 520) | $6,500.00 |
|---|---|
| Cap at this income (no phase-out below $150,000) | $12,500.00 |
| Deduction | $6,500.00 |
| Estimated federal tax saving | $1,430.00 |
The saving is calculated exactly: federal tax at this income minus federal tax after removing the deduction, using 2025 brackets and the standard deduction.
Frequently asked questions
What exactly is the 'no tax on overtime' deduction?
For tax years 2025-2028, new Internal Revenue Code Section 225 lets you deduct the premium portion of overtime pay — the extra 'half' in time-and-a-half that the Fair Labor Standards Act (FLSA) requires — from your federal taxable income. It is a deduction, not an exclusion: the pay is still taxed for Social Security and Medicare, and you claim the deduction on your tax return.
How much can I deduct?
Up to $12,500 per year, or $25,000 if married filing jointly. The cap shrinks by $100 for every $1,000 of modified AGI above $150,000 (single) or $300,000 (joint), and disappears at $275,000 / $550,000. Married filing separately filers cannot claim it.
If I earn $15,000 of overtime pay, do I deduct $15,000?
No — only the premium third. At time-and-a-half, one third of the overtime cheque is the premium (0.5 of the 1.5 rate). $15,000 of overtime pay contains $5,000 of premium, so the maximum deduction from that pay is $5,000, subject to the caps.
Do I need to itemize to claim it?
No. The deduction is available whether you take the standard deduction or itemize, but you must have a Social Security number, and married taxpayers must file a joint return.
How do I find my 2025 premium amount if my W-2 does not show it?
For 2025, employers were not required to report qualified overtime separately (IRS Notice 2025-62 gives penalty relief, and Notice 2025-69 gives workers reasonable methods). You may use pay stubs: if only total time-and-a-half pay is shown, take one third of it as the premium; for double time, take one quarter of the combined total. From 2026, W-2s must report qualified overtime separately.
Does overtime premium pay still count for state tax?
Usually yes. The deduction is federal only; most states have not adopted it, so the premium remains in your state taxable income unless your state has conformed. Check your state's rules.