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.
Claiming the No-Tax-on-Overtime Deduction on Your 2025 Tax Return
For tax year 2025 (returns filed by April 15, 2026), the IRS treats the OBBB overtime deduction as an above-the-line adjustment — meaning you claim it whether or not you itemize. The deduction will appear on a new line of Schedule 1 (Additional Income and Adjustments to Income) attached to your Form 1040. Your employer is required to report the qualifying overtime premium amount in a new W-2 box per IRS Publication 15 (Circular E) employer guidance; you transcribe that figure to your return.
Practical workflow: (1) check Box 14 or the new dedicated OBBB-overtime box on your 2025 W-2 once your employer issues it in January 2026, (2) confirm the total matches your last pay stub of 2025, (3) enter that figure on Schedule 1 of Form 1040, (4) the deduction flows to Line 10 of your 1040 and reduces your taxable income. If your employer's W-2 does NOT separate out the overtime premium (which can happen with smaller payroll systems), keep your final 2025 pay stub showing year-to-date overtime hours and ask payroll for a corrected W-2 (Form W-2c). State conformity to the federal deduction varies — most states will NOT automatically allow the deduction on state returns. Updated 2026-05-29.
Frequently Asked Questions
What is the no-tax-on-overtime rule under OBBBA?
The One Big Beautiful Bill Act (OBBBA) allows workers to deduct qualified overtime pay from their federal taxable income for tax years 2025 through 2028. This means your overtime hours may not be subject to federal income tax, though FICA taxes still apply.
Is there a cap on the overtime deduction?
There is no fixed dollar cap on the overtime deduction itself — all qualifying overtime pay can be deducted. However, the deduction phases out for higher earners: single filers between $150,000 and $400,000 MAGI, and married filing jointly between $300,000 and $550,000 MAGI.
Do I still pay FICA taxes on overtime?
Yes. FICA taxes — Social Security (6.2%) and Medicare (1.45%) — still apply to all overtime income. The deduction only reduces your federal income tax liability, not your payroll taxes.
Do state taxes still apply to overtime?
Yes. The no-tax-on-overtime rule is a federal deduction only. Most states have not adopted a matching exemption, so your overtime income will still be subject to state income tax in most states.
How is overtime pay calculated?
Under the Fair Labor Standards Act (FLSA), overtime is paid at 1.5x your regular hourly rate for all hours worked beyond 40 in a workweek. So if your regular rate is $20/hour, your overtime rate is $30/hour.
Is the no-tax-on-overtime benefit permanent?
No. The provision is available for tax years 2025 through 2028 only. Congress would need to pass new legislation to extend it beyond that period.
How do I claim the no-tax-on-overtime deduction on my Form 1040?
For tax year 2025 returns (filed by April 15, 2026), the OBBB overtime deduction is an above-the-line adjustment claimed on Schedule 1 of Form 1040. Your employer must report your qualifying overtime premium amount on your W-2 (typically Box 14 or a new dedicated OBBB-overtime box per IRS Pub 15). You transcribe that figure to Schedule 1, and it flows to Line 10 of your Form 1040, reducing your taxable income before the standard or itemized deduction.
What if my W-2 doesn't separate out the overtime amount?
Some smaller payroll systems may not break out the OBBB-qualifying overtime premium on the W-2 by January 2026. If yours doesn't, save your final 2025 pay stub (it shows year-to-date overtime hours and the premium portion), then ask HR or payroll for a corrected W-2 (Form W-2c). You cannot self-calculate the deduction without employer confirmation because the IRS cross-checks the W-2-reported amount against what you claim on Schedule 1.