Overtime tax calculator
“No tax on overtime” is a federal deduction for the half-time premium you earn, worth up to $12,500 a year ($25,000 joint) from 2025 to 2028. See your qualified amount and what it saves.
Social Security and Medicare ($5,248) and most state taxes still apply. Marginal federal rate 12%.
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What the deduction does and doesn’t cover
Covered: federal income tax on the FLSA premium for hours over 40 a week, for W-2 employees who are non-exempt under the Fair Labor Standards Act.
Not covered: the base 1× part of overtime pay, Social Security and Medicare (7.65% still applies to all of it), most state income taxes, and salaried exempt employees who aren’t owed FLSA overtime.
Example
A single nurse aide earning $25 an hour works 8 overtime hours a week for 50 weeks. Overtime pay is $15,000 (400 × $37.50), but qualified overtime is the $12.50 premium × 400 = $5,000. In the 12% bracket that deduction saves about $600 of federal income tax.
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Savings at a glance
| Qualified premium | Saved at 12% | at 22% | at 24% |
|---|---|---|---|
| $2,500 | $300 | $550 | $600 |
| $5,000 | $600 | $1,100 | $1,200 |
| $7,500 | $900 | $1,650 | $1,800 |
| $10,000 | $1,200 | $2,200 | $2,400 |
| $12,500 | $1,500 | $2,750 | $3,000 |
Source: One Big Beautiful Bill Act §70202 and IRS Schedule 1-A instructions. Savings = deduction × marginal rate, single filer below the phase-out.
Questions people ask
Is overtime tax-free now?
Partly. For tax years 2025 through 2028, the One Big Beautiful Bill Act lets you deduct qualified overtime compensation from federal taxable income: up to $12,500 a year, or $25,000 on a joint return. It is a deduction, not an exemption, so the overtime is still withheld on and still subject to Social Security, Medicare and usually state tax.
What counts as qualified overtime?
Only the premium portion required by the Fair Labor Standards Act: the extra half in time-and-a-half for hours over 40 in a week. If you earn $30 an hour and work 10 overtime hours at $45, your qualified overtime is $150 (10 × $15), not $450. Overtime paid under a union contract or state law beyond the FLSA requirement, and double-time above 1.5×, generally does not qualify.
What are the income limits?
The $12,500 / $25,000 cap is reduced by $100 for every $1,000 of modified AGI above $150,000 (single) or $300,000 (married filing jointly). It disappears completely at $275,000 single or $550,000 joint.
Do I need to itemize?
No. The deduction is claimed on Schedule 1-A and is available whether you take the standard deduction or itemize. You need a valid Social Security number, and married couples must file jointly.
How will I know my qualified overtime amount?
Employers must report qualified overtime separately on your W-2 (from 2026; for 2025 the IRS allowed reasonable estimates from pay stubs). Use that figure in Schedule 1-A.
Why does my overtime paycheck look heavily taxed?
Payroll systems annualise each paycheck, so a week with lots of overtime is withheld as if you earned that much every week. The deduction is applied when you file, so the savings typically arrive as part of your refund unless you adjust your W-4.