Two different questions, both answered here. What actually comes out of an overtime check, and what the OBBBA deduction gives back at filing — up to $12,500 (single) or $25,000 (MFJ) of qualified overtime premium deducted from your federal taxable income.
To calculate your no tax on overtime deduction, divide your total overtime earnings by three, then cap the result at $12,500 if you file single or $25,000 if you file jointly. That one-third is the “premium” portion — the extra half in time-and-a-half — and it is the only part the OBBBA lets you deduct. What you actually get back is that deductible amount times your marginal tax rate, so $6,000 of overtime pay produces a $2,000 deduction worth $240 at the 12% rate and $440 at 22%. Which one applies depends on your income, so the calculator below works it out rather than assuming a bracket.
Not sure what your OT hours are worth before tax? Start with the overtime calculator. Earn tips too? The OBBBA tip deduction stacks with this one — estimate it with the no-tax-on-tips calculator.
Last updated · Reflects IRS guidance for tax years 2025–2028 · Sources listed at the foot of this page
Enter one pay period. This is withholding — what your employer takes at the time. Your final tax is settled later, on your return, and the deduction below is part of that.
Overtime is paid at 1.5x this. If you got a bonus that week your regular rate is higher than your hourly wage — that is the FLSA trap.
Sets your bracket. Above the $184,500 Social Security wage base, Social Security is shown as already maxed out for this check.
Leave blank if your state has no income tax. The OBBBA deduction is federal only — states tax overtime as usual.
Estimate, using verified 2026 federal figures. Real withholding follows the IRS Pub 15-T percentage method against the W-4 on file, which accounts for dependents, multiple jobs and extra withholding — so your check can differ from both figures above. It also leaves out the 0.9% Additional Medicare Tax your employer withholds once your wages pass $200,000 in the year.
Annual figures, for the return you file. Tax year 2026 tables —$16,100 standard deduction single, $24,150 head of household, $32,200 joint.
The return you will file next year, for overtime you are working now.
Married filing separately can't claim this deduction; a married taxpayer must file jointly.
OT premium = total OT earnings ÷ 3. Isolates the “half” of time-and-a-half when hours aren't tracked separately.
Used to check the phase-out and estimate your bracket.
401(k), HSA, student loan interest, etc. These also lower the MAGI used for the phase-out.
Time-and-a-half means you earn 1.5× your regular rate on overtime hours. The deductible amount is only the extra half — not the base pay. Since 0.5 ÷ 1.5 = ⅓, your OT premium equals exactly one-third of your total OT earnings. For tax year 2025, when employers weren't required to report the premium separately, IRS Notice 2025-69 and the Schedule 1-A instructions specifically allow dividing total overtime pay by three for overtime paid at time-and-a-half. From tax year 2026 the only amount you can deduct is the one your employer reports in Box 12, code TT (IRS FS-2026-13, FAQ 20), so ÷ 3 is a way to estimate that figure, not to replace it.
| Total overtime earnings for the year | $6,000 |
| Deductible OT premium (÷ 3) | $2,000 |
| Below the $12,500 cap? | Yes — full amount deductible |
| Below the $150,000 phase-out? | Yes — no reduction |
| Marginal federal tax rate | 22% |
| Federal tax saved ($2,000 × 22%) | $440 |
You get back the federal income tax on roughly one third of your overtime pay, not on all of it. Federal income tax is withheld on your full overtime earnings every payday. The OBBBA deduction refunds the tax on the premium portion only — the extra half in time-and-a-half — so the money that comes back at filing is a fraction of what was taken out during the year.
| Total OT pay | Deductible premium | 12% bracket | 22% bracket | 24% bracket |
|---|---|---|---|---|
| $3,000 | $1,000 | $120 | $220 | $240 |
| $6,000 | $2,000 | $240 | $440 | $480 |
| $12,000 | $4,000 | $480 | $880 | $960 |
| $24,000 | $8,000 | $960 | $1,760 | $1,920 |
| $37,500 | $12,500 | $1,500 | $2,750 | $3,000 |
Follow the $6,000 case through in the 22% bracket. Over the year your employer withheld roughly $1,320 of federal income tax on that overtime. At filing you recover $440. So:
This is why “no tax on overtime” is a misleading name. The deduction is real and worth claiming, but it returns a slice of one tax, not all tax on your overtime.
Employers are not required to separately break out qualified OT on 2025 W-2s. This requirement starts in 2026 (Box 12, code TT). For your 2025 return, you self-report using “reasonable methods.” Ask your payroll department. Keep documentation — paystubs, timesheets, or a calculation worksheet like this one.
| Filing Status | Max Deduction | Phase-out Starts | Gone Entirely At (Full Cap) |
|---|---|---|---|
| Single / HoH | $12,500 | $150,000 | $275,000 |
| Married Filing Jointly | $25,000 | $300,000 | $550,000 |
Reporting is no longer optional: for tax year 2026, employers must report your qualified overtime premium in Box 12, code TT of the W-2 you'll receive in early 2027 — only the premium (the extra “half”), since the full amount is already inside Box 1 wages. Your paycheck itself doesn't change: federal withholding on overtime continues all year, and you recover the deduction when you file via Schedule 1-A. You can only deduct what Box 12, code TT shows — if it's wrong, ask your employer for a corrected W-2c (the IRS does not accept a substitute Form 4852 for this). If you want a running estimate during the year instead of a surprise at filing, track your OT with the multi-period OT tracker.
Divide your total overtime earnings by three, then cap the result at $12,500 if you file single or $25,000 if you file jointly. The one-third is the premium portion — the extra half in time-and-a-half — and it is the only part that qualifies. For tax year 2026 and later, the deduction is limited to what your employer reports in W-2 Box 12, code TT, so use that figure; the ÷ 3 estimate is for planning (and for 2025 returns, where employers weren't required to report it). Multiply the final deductible amount by your marginal tax rate to see what you actually save.
It applies retroactively to January 1, 2025 — the OBBBA was signed July 4, 2025, effective for tax years 2025 through 2028. Workers claimed it for the first time on 2025 returns filed in early 2026, using the new Schedule 1-A. Unless Congress extends it, the deduction ends after tax year 2028.
No — the name oversells it. Overtime is still fully subject to Social Security and Medicare (FICA), still subject to state income tax in most states, and your employer still withholds federal income tax on it every paycheck. What you get is a federal income tax deduction at filing time for the premium portion of FLSA overtime — the extra “half” in time-and-a-half, capped at $12,500 (single) or $25,000 (married filing jointly).
Up to $12,500 of OT premium per year ($25,000 MFJ). Because the premium is one-third of total time-and-a-half earnings, you'd need about $37,500 of total overtime pay in a year to hit the single-filer cap. A more typical example: $10,000 of total OT earnings → about $3,333 deductible → roughly $733 of federal tax savings in the 22% bracket. Run your own numbers in the calculator above.
No — you get back the tax on the premium portion only, not the tax on all of your overtime pay. Federal income tax is withheld on the full overtime amount during the year; the deduction refunds the tax on roughly one-third of it, up to the cap. FICA is never refunded by this deduction, and most states still tax overtime in full. A single filer with $6,000 of overtime in the 22% bracket gets about $440 back — not the roughly $1,320 of federal tax withheld on that overtime.
Usually yes — but smaller than the extra tax the overtime itself created. Working overtime raises both your income and the tax withheld on it. The deduction then cancels the federal income tax on the premium portion, which increases your refund relative to what it would have been without the deduction. You do not end up better off than if you had never worked the overtime; you simply keep more of it. And whether you see a refund at all still depends on whether your total withholding for the year exceeded your total liability.
For 2025, employers weren't required to break out qualified OT — you self-report using a reasonable method (like the ÷ 3 rule) with paystubs as backup. Starting with tax year 2026, the qualified OT premium is required in Box 12 under code TT, appearing on W-2s issued in early 2027. Two other new codes arrive alongside it: TP (tips) and TA (Trump Account contributions).
Only the portion the FLSA itself requires qualifies — overtime past 40 hours in a workweek. Premiums owed purely under state law (California daily OT after 8 hours, double time after 12, seventh-day premiums) don't count unless those same hours also exceed 40 for the week. Contractually promised OT beyond the FLSA minimum doesn't qualify either. If you're unsure what your legally required premium is, the FLSA regular-rate calculator isolates it — and the plain overtime calculator shows what the hours are worth before tax.
This page explains federal rules and is not tax advice. Confirm your own eligibility with a qualified tax professional.
This calculates the deduction on the regular rate you entered. If that rate is off — a nondiscretionary bonus left out, a shift differential missed, overtime paid at straight time — the deduction is off with it. Drop the register and sweep it before the deposit goes out. Runs in your browser; the file never leaves it.
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