No Tax on Overtime Calculator 2026
The One Big Beautiful Bill Act (OBBBA) lets you deduct qualifying overtime pay from your federal income taxes. Enter your wages, overtime hours, and filing status to see your estimated 2026 tax savings.
How the No-Tax-on-Overtime Rule Works
The One Big Beautiful Bill Act (OBBBA) introduces a federal deduction for qualified overtime pay starting with tax year 2025. Under this provision, the overtime premium you earn — the extra pay for hours worked beyond 40 per week — can be deducted from your federal adjusted gross income. This effectively removes federal income tax from your overtime earnings, leaving you with more take-home pay.
The deduction applies to the overtime premium portion (the "extra half" above your base rate), not necessarily all overtime gross pay. Under FLSA, overtime is paid at 1.5x your regular rate, so the deductible amount is typically 0.5x your regular rate for each overtime hour worked.
Overtime Deduction Rules and Phase-Outs
Quick Reference — OBBBA Overtime Deduction (2025–2028)
- Deduction: Qualified overtime pay excluded from federal taxable income
- FICA: Still applies — Social Security (6.2%) and Medicare (1.45%) are not exempt
- State taxes: Still apply — federal deduction only; check your state law
- Phase-out starts: $150,000 MAGI (single) / $300,000 (married filing jointly)
- Fully phases out: $400,000 MAGI (single) / $550,000 (married filing jointly)
- Availability: Tax years 2025 through 2028 only (subject to Congressional extension)
For most hourly workers earning under $150,000 annually, the deduction applies in full. Higher-income earners see the benefit gradually reduced. Workers earning above $400,000 (single) or $550,000 (MFJ) receive no benefit from this provision.
Who Benefits Most From the Overtime Deduction?
The biggest winners are hourly workers in industries with significant overtime: healthcare, manufacturing, transportation, construction, and retail. A nurse working 10 overtime hours per week, for example, could see thousands of dollars in annual federal tax savings. The deduction benefits full-time employees whose employers pay FLSA-required overtime premiums.
Example: Factory Worker, 10 OT Hours/Week
- Base salary: $52,000/year ($25/hour regular rate)
- Overtime rate: $37.50/hour (1.5x)
- Overtime pay (10 hrs × 50 weeks): $18,750/year
- Federal tax savings at 22% rate: ~$4,125/year
- FICA on overtime still due: ~$1,434
Self-employed workers and independent contractors who set their own hours typically do not qualify, as they do not receive FLSA overtime premiums. The deduction targets W-2 employees covered by overtime law.
Overtime vs. Tips: How OBBBA Treats Both
OBBBA introduced two separate worker-focused deductions: one for qualifying tip income (up to $25,000) and one for overtime pay. They work independently, so you can benefit from both if you earn tips and overtime. The tip deduction has a hard dollar cap while the overtime deduction covers all qualifying overtime pay without a stated cap, subject to the phase-out thresholds. Use the related calculators below to estimate your combined OBBBA savings.