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No tax on overtime calculator

See how much of your overtime you can deduct in 2026 and how much federal income tax it saves, using the IRS rules updated in August 2026.

Updated October 2, 2026 · Tax years 2025 and 2026 · Based on IRS guidance

Your overtime

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Include wages, overtime and tips. Your AGI is line 11 of Form 1040; for most people it's close to total pay before taxes.
How do you want to enter overtime?
From 2026, employers report the deductible half-time premium here. Add your spouse's amount if you file jointly.
Only hours over 40 in a workweek count under federal law.

Deductible premium: $0 (the “half” in time-and-a-half)

We take one third of it: the part above your regular rate.

How the overtime deduction works

The 2025 tax law created a new federal deduction for overtime pay. You don't deduct all of your overtime: you deduct the premium, the pay above your regular rate that the Fair Labor Standards Act requires for hours over 40 in a workweek. In “time-and-a-half,” that's the half.

  1. Find your qualified overtime. For 2026, it's the amount in box 12, code TT on your W-2. For 2025, use your pay stubs: regular rate × 0.5 × overtime hours, or one third of total time-and-a-half pay.
  2. Apply the cap. $12,500 per return, or $25,000 for married couples filing jointly.
  3. Apply the income phase-out. Subtract $100 for each full $1,000 your modified AGI is over $150,000 ($300,000 joint).
  4. Claim it on Schedule 1-A, which lowers your taxable income. Your saving is roughly the deduction times your tax bracket.
New for 2026: the IRS updated its overtime FAQs on August 6, 2026. Employers now must report qualified overtime in W-2 box 12, code TT, and you generally can't deduct more than what's reported there. Read the code TT guide.

Examples

WorkerOvertimeDeductionApprox. tax saved
Warehouse worker, single, $26/hr, $62,000 income8 hrs/week × 48 weeks$4,992About $600 (12% bracket)
Nurse, single, $45/hr, $118,000 income$30,000 at time-and-a-half$10,000About $2,200
Married couple, both hourly, $140,000 joint income$9,000 combined premium (code TT)$9,000About $1,780
Single, $210,000 income$12,500 premium$6,500 (reduced by $6,000)About $1,560 (24% bracket)

Results above are rounded. Enter your own numbers in the calculator for an exact estimate under the 2026 brackets.

What counts as qualified overtime

  • Overtime required under section 7 of the FLSA: hours over 40 in a workweek for non-exempt employees.
  • Only the premium portion. Your regular-rate pay for those hours is still fully taxable.
  • The regular rate includes most non-discretionary bonuses, so it can be higher than your base hourly wage.
  • Paid-out comp time can qualify when it's paid as FLSA overtime.

Not included: overtime paid only because of state law or a union contract beyond the FLSA, overtime of FLSA-exempt employees, and anything your employer doesn't report as qualified overtime from 2026 on.

Common questions

Is overtime really tax-free now?

No. Overtime is still taxable income and still has Social Security, Medicare and income tax withheld. The new rule lets you subtract the overtime premium (the extra half in time-and-a-half) when you file, which lowers your federal income tax. The IRS says plainly that the deduction doesn't exclude overtime from gross income.

How much of my overtime is deductible?

Only the part above your regular rate that the Fair Labor Standards Act requires. If you earn $20 an hour and get $30 for overtime, $10 of each overtime hour is deductible. For time-and-a-half, that's one third of your total overtime pay. Double time doesn't raise it: only the FLSA-required half-time premium counts.

What is the maximum overtime deduction?

$12,500 per return, or $25,000 if you're married and file jointly. It shrinks by $100 for every full $1,000 your modified adjusted gross income is above $150,000 ($300,000 joint).

Where do I find my qualified overtime on my W-2?

Starting with tax year 2026, employers must report it in box 12 with code TT. For tax years after 2025 you can generally only deduct the amount shown there. If it's missing or too low, ask your employer for a corrected Form W-2c. A substitute Form 4852 can't be used to claim more.

Do salaried workers qualify?

Only if they're legally owed overtime under the FLSA. Workers classified as FLSA-exempt, such as most executives and many salaried professionals, don't get required overtime, so they have nothing to deduct, even if their employer pays extra for long weeks.

Does daily overtime or overtime from a union contract count?

Only the amount the federal FLSA requires counts. Overtime paid because of a state law (like California daily overtime) or a contract that goes beyond the FLSA doesn't add to the deduction.

Can I get the benefit in my paycheck instead of waiting for my refund?

Yes. Your employer can't change your withholding on its own, but you can give them an updated Form W-4 that reflects the expected deduction, which lowers the tax taken from each check.

Do I need to itemize?

No. The deduction goes on Schedule 1-A and works whether you take the standard deduction or itemize. You need a Social Security number valid for work, and married couples must file jointly.

How long does the overtime deduction last?

Tax years 2025 through 2028 under current law.

Other new deductions

No tax on tipsDeduct up to $25,000 of qualified tips.Open calculatorCar loan interestDeduct up to $10,000 of interest on a new U.S.-assembled car.Open calculatorSenior deductionAn extra $6,000 per person age 65 or older.Open calculatorAll four togetherSee your total Schedule 1-A savings in one place.Open calculator

Sources

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