How the “no tax on overtime” deduction works (2025–2028)
The One Big Beautiful Bill Act (OBBBA) created a temporary federal deduction for overtime pay — but with an important catch most headlines skip: only the premium portion is deductible. Under the Fair Labor Standards Act, overtime is paid at "time-and-a-half" (1.5×). The deductible amount is just the extra half — the part above your regular rate — not the whole overtime paycheck.
So if your regular rate is $20/hour, an overtime hour pays $30. Your regular $20 isn't deductible; the $10 premium is. This calculator works out that premium across your year, caps it correctly, applies the income phase-out, and shows the federal tax you actually save.
The rules at a glance
| Rule | Detail |
|---|---|
| What's deductible | The overtime premium only — the ½ above your regular rate |
| Maximum deduction | $12,500 single · $25,000 married filing jointly |
| Phase-out start (MAGI) | $150,000 single · $300,000 joint |
| Phase-out rate | Drops $100 for every $1,000 over the threshold |
| Tax years | 2025–2028 (then expires) |
| Applies to | Federal income tax only — not Social Security or Medicare |
Worked example
Say you earn $25/hour and work 250 overtime hours in the year. Your overtime gross is 250 × $25 × 1.5 = $9,375, but the deductible premium is 250 × $25 × 0.5 = $3,125. If your marginal federal rate is 12%, you save roughly $375 in federal income tax. Bump the overtime up and the saving grows — until the premium hits the $12,500 cap (single).
Why overtime isn't fully tax-free
As with tips, "no tax on overtime" is shorthand. Social Security and Medicare still come out of your overtime pay, many states still tax it, and only the premium half escapes federal income tax — and only up to the cap. This tool shows the real federal saving rather than the headline.
Frequently asked questions
Is my whole overtime check tax-free?
No. Only the premium — the extra half of time-and-a-half — is deductible, and only from federal income tax. Your regular-rate pay for overtime hours, plus FICA and most state taxes, are unaffected.
What if I don't know my exact overtime hours?
Estimate. A common pattern is a few hours a week — 5 hrs/week is about 260 hours a year. Enter your best estimate of total annual overtime hours and adjust to see the range.
Does it phase out for higher earners?
Yes. Above $150,000 MAGI (single) or $300,000 (joint), the deduction shrinks by $100 per $1,000 of income over the line.
Is this an official IRS tool?
No. Calcova is an independent estimator using the enacted OBBBA rules and 2026 federal brackets. Accurate for typical hourly wage income, but not tax advice — verify with the IRS.
Related calculator
No Tax on Tips calculator → — the OBBBA also lets tipped workers deduct up to $25,000 of tips. Check that saving too.