No tax on overtime: how the deduction works
"No tax on overtime" is a federal income tax deduction for tax years 2025–2028, claimed when you file. It covers only the extra half of time-and-a-half — not the whole overtime paycheck — up to $12,500 a year ($25,000 on a joint return).
What counts
- Only overtime the federal Fair Labor Standards Act requires — generally hours over 40 in a workweek for non-exempt workers — and only the part above your regular rate. At $20.00 an hour, time-and-a-half is $30.00; $10.00 of each overtime hour counts.
- Not overtime paid only because of a state law or your contract, and not the extra part of double time beyond what federal law requires. For example, if you're paid $400 of double time where federal law required $300 of pay, only $100 counts.
- You need a valid Social Security number, and married couples must file a joint return to claim it.
How much it's worth
| Example | Overtime premium | Deduction | Tax saved at 12% | at 22% |
|---|---|---|---|---|
| $20.00/hr, 5 overtime hrs × 50 weeks | $2,500 | $2,500 | $300 | $550 |
| $30.00/hr, 10 overtime hrs × 50 weeks | $7,500 | $7,500 | $900 | $1,650 |
| $40.00/hr, 15 overtime hrs × 50 weeks | $15,000 | $12,500 | $1,500 | $2,750 |
Single filer with income under $150,000. The saving is the deduction times your top federal tax bracket.
The income limit
The deduction shrinks by $100 for each $1,000 of modified adjusted gross income over $150,000 ($300,000 joint). At $170,000 single, a $12,500 deduction is cut by $2,000 to $10,500.
What it doesn't change
Social Security (6.2%) and Medicare (1.45%) still come out, and your state decides for itself whether to follow the deduction. Your paycheck withholding stays the same unless you give your employer a new W-4 — the saving arrives when you file.
From 2026, employers report qualified overtime on your W-2 in box 12 with code TT. You claim the deduction on Schedule 1-A with your Form 1040, whether you take the standard deduction or itemize.
See what overtime adds to your paycheck after tax with the overtime calculator.
Sources
- 26 U.S. Code § 225 — Qualified overtime compensation — $12,500 ($25,000 joint); reduced by $100 for each $1,000 of MAGI over $150,000 ($300,000 joint); ends after 2028
- IRS Fact Sheet FS-2026-13 — Qualified overtime compensation FAQs (August 2026) — only FLSA-required overtime above the regular rate; state-law or contract overtime doesn't count; valid SSN; married couples must file jointly; still subject to withholding and Social Security; W-2 box 12 code TT from 2026; withholding changes only with a new W-4
- IRS Tax Tip 2026-06 — How to take advantage of no tax on tips and overtime (January 26, 2026) — tips up to $25,000; overtime up to $12,500 ($25,000 joint); phase-out over $150,000 MAGI ($300,000 joint); itemizers and non-itemizers
- IRS — Schedule used to claim no tax on tips, overtime, car loans and seniors (March 2, 2026) — claimed on Schedule 1-A; whether you take the standard deduction or itemize
- IRS Notice 2025-69 — Guidance for tax year 2025 tips and overtime — how to work out 2025 amounts before employers reported them separately
- Social Security Administration — 2026 wage base of $184,500
Questions
Is overtime tax-free now?
Not on your paycheck. For 2025–2028 you can deduct the premium part of FLSA overtime (the "half" of time-and-a-half) on your federal return, up to $12,500 ($25,000 joint). Social Security and Medicare still apply.
Does no tax on overtime change my paycheck?
No. Your employer keeps withholding as before unless you give it a new W-4. The saving comes when you file your return.
Does state-required overtime count?
No. Only overtime required by the federal Fair Labor Standards Act counts. Overtime paid only because of a state law or a contract doesn't.
How much can I deduct for overtime?
Up to $12,500 a year, or $25,000 on a joint return, reduced by $100 for each $1,000 of income over $150,000 ($300,000 joint).
Does the overtime deduction affect state taxes?
It's a federal deduction. Each state decides whether to follow it.