Last updated: October 2026
No tax on overtime calculator
The One Big Beautiful Bill Act created a federal deduction for “qualified overtime compensation” for tax years 2025 through 2028. Looking for an overtime tax deduction calculator 2025 specifically? You're in the right place — the tool above covers all four eligible years. The headline — “no tax on overtime” — is misleading: it's a deduction from taxable income, not tax-free overtime. Your overtime pay is still subject to federal withholding, Social Security and Medicare taxes on every paycheck. What changes is your tax return: you deduct the premium portion and pay less income tax. The good news: it works whether you itemize or take the standard deduction.
Overtime tax deduction calculator: how the math works
2) Capped = min(premium, $12,500 single / $25,000 joint)
3) Phase-out: reduction = floor(max(0, MAGI − threshold) ÷ 1,000) × $100
threshold = $150,000 single / $300,000 joint
4) Deduction = max(0, capped − reduction)
5) Est. savings = deduction × marginal bracket
The formula follows the IRS's published method (Fact Sheet FS-2026-13, August 2026). The single most misunderstood step is #1: only the premium half qualifies. At $20/hour time-and-a-half ($30/hour), the qualifying amount is $10 per overtime hour — not $30. Calculators that multiply your whole overtime check by your tax rate overstate the savings by roughly 3×.
Overtime tax refund calculator: what you'll actually save
Searching for an “overtime tax refund calculator” usually means one question: how much money do I actually keep? Because this is a deduction, the answer is always smaller than the deduction itself. Take the calculator's deduction number and multiply by your marginal bracket — that's the real benefit. A $5,000 deduction at 22% = $1,100; at 12% = $600. The same overtime hours are worth nearly twice as much in tax savings to a 24%-bracket worker as to a 12%-bracket worker.
How does no tax on overtime work?
- Work qualifying overtime. Only overtime required by the Fair Labor Standards Act (generally hours over 40/week for non-exempt workers) counts — overtime paid under a union contract, state law or company policy alone does not.
- Your employer reports it. From 2026, qualified overtime appears in W-2 Box 12 with Code TT. Only the reported amount counts — check it against your final pay stub.
- Claim the deduction. It's an above-the-line deduction (new Schedule 1-A), so itemizers and standard-deduction filers both get it. Married couples must file jointly, and you need a valid Social Security number.
- Watch the phase-out. Above $150,000 MAGI single ($300,000 joint), the deduction shrinks by $100 per $1,000 of income — gone entirely at $275,000/$550,000.
For an independent analysis of the IRS guidance, see Liskow & Lewis on the IRS's Fact Sheet 2026-13.
Who qualifies — and what doesn't
| Situation | Qualifies? | Why |
|---|---|---|
| Hourly worker, 45 hrs/week at time-and-a-half | Yes | FLSA-required overtime; premium = 0.5× rate |
| Salaried exempt manager paid “overtime” anyway | No | Not FLSA-eligible, even if employer pays extra |
| Double-time holiday pay (2× rate) | Partial | Only the FLSA premium portion, not the full 2× |
| State-law daily overtime (over 8 hrs/day) | No | Must be FLSA Section 7 overtime specifically |
Planning around the bigger picture? Our time value of money calculator shows what consistent tax savings grow into when invested.
Worked example
| Step | Math | Result |
|---|---|---|
| 1. Premium | 200 hrs × ($25 × 0.5) | $2,500 |
| 2. Cap (single) | min($2,500, $12,500) | $2,500 |
| 3. Phase-out | $80K MAGI < $150K threshold | $0 reduction |
| 4. Deduction | $2,500 − $0 | $2,500 |
| 5. Savings | $2,500 × 22% | $550 |