Overtime deduction · tax year 2025
No tax on overtime calculator
Your employer was not required to put this figure on your W-2, so it has to come from your own hours. Two things decide it: only the half-premium of each overtime hour qualifies, and the deduction shrinks by $100 for every whole $1,000 you earn above $150,000.
Your straight-time rate, not the overtime one.
Hours over 40 in a week, added up.
Everything including the overtime — box 1 of your W-2.
Left blank, so we are using your wages. For a wage earner with no foreign or Puerto Rico income those are the same number — Schedule 1-A lines 1–3 add back only those.
Your deduction
$4,500
which is worth about $990 off your federal tax at 22%.
- Overtime you were paid
- $13,500
- Of that, qualified — the half-premium ($15.00/hr)
- $4,500
Careful with the name: "no tax on overtime" sounds like all $13,500 comes off. It does not — only the 33% half-premium qualifies, so the deduction is $4,500, not $2,970 of tax back.
Federal only. Your state may or may not follow this deduction — most have their own rule, and some have none.
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The part the name hides
A third of your overtime, not all of it
"No tax on overtime" reads like the overtime line on your payslip stops being taxed. It does not. The deduction is tied to overtime required under section 7 of the Fair Labor Standards Act, and what section 7 requires is the half-premium — the extra half you are paid because the hour was overtime, not the hour itself. The IRS spells it out: the half portion of the one and one-half times is the qualified part.
| At $30/hr | Paid for the hour | Qualifies | Share |
|---|---|---|---|
| Time and a half | $45.00 | $15.00 | 1 / 3 |
| Double time | $60.00 | $15.00 | 1 / 4 |
The second row is the one that surprises people. Generous overtime does not enlarge the deduction, because the FLSA still only requires the half — everything above it is ordinary wages for this purpose. The same is true of daily overtime that some states mandate, weekend premiums, and anything your contract adds on its own.
Conditions
- You (and the spouse who earned the overtime) must have a valid Social Security number.
- If you are married you must file a joint return — married filing separately cannot claim it.
- It is claimed on Schedule 1-A and carried to Form 1040 line 13b, so it comes off taxable income whether or not you itemise.
Questions
- Is overtime really tax free now?
- No, and the name is doing a lot of work. What the law created is a deduction of up to $12,500 ($25,000 on a joint return) against your taxable income — not an exemption, and not a refund of tax already paid. A deduction is worth your marginal rate: at 22%, $12,500 of deduction is about $2,750 of tax. Social Security and Medicare are unaffected either way, because they are worked out on gross wages and this comes off further down the return.
- How much of my overtime actually counts?
- Only the premium — the extra you get for the hour being overtime, not the whole overtime payment. The IRS puts it as plainly as it can be put: "the ‘half’ portion of the ‘one and one-half times’ paid for an hour of overtime work is qualified overtime compensation." On $30 an hour with time-and-a-half, an overtime hour pays $45 and $15 of it qualifies. That is a third. It is the single most common way to get this calculation wrong, and it overstates the answer threefold.
- What if my employer pays double time?
- The qualified amount does not go up with it. The deduction is tied to overtime "required under section 7 of the Fair Labor Standards Act", and the FLSA only ever requires the half-premium. So at double time the qualified part is still 0.5 × your regular rate — a quarter of the double-time payment rather than a third. Anything your employer pays above the federal requirement is ordinary wages for this purpose, and the same goes for daily overtime some states mandate, weekend premiums, and contractual bonuses.
- At what income does it stop?
- The deduction is reduced by $100 for every whole $1,000 of modified AGI above $150,000 ($300,000 filing jointly). Whole thousands only — Schedule 1-A line 19 says to round the count down, so $150,999 of MAGI reduces nothing at all. It reaches zero at $275,000 single and $550,000 joint.
- Why do I have to work this out myself?
- Because for the 2025 tax year the IRS did not require employers to report qualified overtime separately on Form W-2, 1099-NEC or 1099-MISC. There is no box to copy. From 2026 onward they must report it, but for the first year the figure has to be reconstructed from your own hours — which is what this page is for.
- Does my state follow this?
- Often not, and it is worth checking rather than assuming. States conform to federal deduction changes on their own schedules: some adopt the federal taxable income figure automatically, some adopt it only after their legislature votes, and some start from federal AGI — which sits above this deduction on the return, so the state never sees it at all. This calculator is federal only.
- Can I claim it if I take the standard deduction?
- Yes. It is claimed on Schedule 1-A and carried to Form 1040 line 13b, which sits below the standard-or-itemised choice rather than inside it. You do need a valid Social Security number, and if you are married you must file jointly — married filing separately cannot claim it at all, no matter how much overtime was worked.
Where these figures come from
- Schedule 1-A (Form 1040) 2025, created 11/4/25 — Parts II & III worksheets — read 2026-08-29
- IRS Q&A — deduction for qualified overtime compensation (FLSA §7 definition) — read 2026-08-29
- IRS newsroom — What to know about the No Tax on Overtime deduction (page updated 2026-08-27) — read 2026-08-29
- 26 CFR § 1.224-1 — Qualified tips: final regulations, 91 FR 19026 (13 April 2026, effective 12 June 2026), with the occupation table — read 2026-09-05
- IRS fact sheet — Working Families Tax Cuts: tax deductions for working Americans and seniors (No Tax on Tips section) — read 2026-09-05
Figures are the tax year 2025 ones, which are the ones Schedule 1-A currently prints; the IRS has not published a 2026 version of the form, so no 2026 amounts are shown here rather than guessed at. Estimates only — not tax advice, and not affiliated with the IRS.