No Tax on Overtime Calculator
\"No tax on overtime\" does **not** mean overtime is tax-free. The 2025 OBBBA law created a deduction on the half-time premium portion. Here's what you'd actually save.
The important correction
Overtime is still taxed as ordinary income. What the One Big Beautiful Bill Act (OBBBA) added for tax years 2025–2028 is an above-the-line deduction of up to $12,500 (single) or $25,000 (married filing jointly) — and it applies only to the half-time premium portion of overtime pay, not your full overtime earnings.
Social Security and Medicare taxes still apply to all overtime wages. Anyone telling you overtime is now "tax-free" is wrong.
Your estimated deduction
- Qualified premium (0.5x portion)
- $3,250.00
- Deduction claimed (cap $12,500)
- $3,250.00
- Est. federal tax saved
- $715.00
- at 22% marginal rate
Applies to tax years 2025–2028. An above-the-line federal income tax deduction for the half-time premium portion of FLSA-required overtime pay — not an exemption from taxes on overtime wages. Source: One Big Beautiful Bill Act (OBBBA), IRS guidance. Last verified 2026-09-30.
How the deduction is estimated
What counts
Only the premium half of time-and-a-half pay qualifies. Example: at a $20/hr base rate, overtime pays $30/hr — the deductible portion is the extra $10/hr, not the full $30.
The estimate
Qualified overtime premium = overtime hours × hourly rate × 0.5
Deduction claimed = min(qualified premium, $12,500 single / $25,000 joint)
Estimated tax saved = deduction claimed × your marginal tax rate
Limits & phaseouts
- Available for tax years 2025 through 2028
- Caps: $12,500 single / $25,000 joint
- You must report overtime compensation; the deduction is claimed on your return
- Does not reduce Social Security/Medicare tax
No tax on overtime FAQs
Is overtime tax-free now?
No. It's a deduction on the premium portion (2025–2028), capped at $12,500/$25,000. Your overtime wages are still subject to income tax and payroll tax.
How much can I deduct?
Up to $12,500 if single, $25,000 if married filing jointly — but only the half-time premium counts, so most workers won't hit the cap.
Do I need to itemize?
The OBBBA overtime deduction is above-the-line, so you can claim it even if you take the standard deduction.
Does it cover state taxes?
The deduction is federal. States decide independently whether to conform.
What years does it apply to?
Tax years 2025, 2026, 2027 and 2028 — unless Congress extends it.
Estimates only — not tax or legal advice. Verify with your employer or a tax professional.