No Tax on Overtime Calculator
Find out how much of your overtime pay is deductible under the One Big Beautiful Bill Act. Free, instant, no signup.
Regular rate (not OT rate)
Hours worked beyond 40/week
Modified Adjusted Gross Income
Overtime Premium Deduction
$6,250
✅ You qualify for the full deduction
⚠️ This calculator provides estimates for informational and educational purposes only. It is not tax advice. Results are based on the One Big Beautiful Bill Act (OBBBA) and IRS Schedule 1-A. Consult a qualified tax professional for your specific situation.
How the Overtime Deduction Works
Only the premium portionof your overtime counts — that's the extra 0.5× above your regular rate. If your hourly rate is $25 and you work overtime at $37.50/hour, only the extra $12.50/hour is deductible.
For example, if you earn $25/hour and work 500 hours of overtime in a year:
- • Overtime rate: $25 × 1.5 = $37.50/hour
- • Premium portion: $37.50 − $25 = $12.50/hour
- • Total deductible amount: $12.50 × 500 = $6,250
- • At the 22% bracket, that saves you $1,375 in federal income tax
- • Maximum deduction: $12,500 (single) / $25,000 (married filing jointly)
- • Income phase-out: $100 per $1,000 of MAGI over $150,000 (single) / $300,000 (MFJ)
- • Eligible tax years: 2025–2028
- • Who qualifies: W-2 hourly employees working overtime (not self-employed or 1099)
Worked Example: Hitting the Cap
Maria is a married-filing-jointly nurse earning $48/hour. In 2025 she worked 1,100 overtime hours — heavy, but common in healthcare. Her household MAGI is $175,000, well below the $300,000 phase-out start.
- • Premium portion per OT hour: $48 ÷ 2 = $24.00
- • Uncapped premium: $24.00 × 1,100 = $26,400
- • Cap for MFJ: $25,000 → Maria deducts $25,000
- • At her 22% marginal bracket: $5,500 in federal income tax saved
Note what the cap means: the $1,400 of premium above the cap still gets taxed normally. High-overtime W-2 workers in the 22%–24% brackets are the biggest winners of this deduction — up to $2,750–$6,000 back per year at the cap.
Worked Example: The Phase-Out
Derek, single, earned $95/hour in a skilled trade and stacked up 500 OT hours ($23,750 premium). But with base wages, his MAGI landed at $190,000 — inside the single phase-out zone.
- • Cap first: $23,750 premium vs the $12,500 single cap → deduction starts at $12,500
- • Phase-out: $190,000 − $150,000 = $40,000 over the threshold → 40 whole thousands
- • Schedule 1-A steps down $100 per $1,000: 40 × $100 = $4,000 reduction
- • Deduction: $12,500 − $4,000 = $8,500
- • At his 24% bracket: $2,040 saved
The phase-out is a step-down of $100 per $1,000 of MAGI over the threshold — a 10% effective rate — not a proportional haircut. The cap applies before the phase-out, and the steps floor to whole thousands ($40,900 of excess still counts as 40 steps). Single filers above $150,000 MAGI should run the numbers both ways — extra OT that pushes income deeper into the phase-out can shrink the effective deduction faster than the extra premium grows it.
Overtime Tax Refund: What Percentage Do You Actually Get Back?
A common misunderstanding: "no tax on overtime" does not mean your overtime becomes tax-free. Here is the real math, using a $26/hour worker in the 22% bracket who banks $5,200 of OT premium in a year:
| Tax | Still Owed on OT | Removed by Deduction |
|---|---|---|
| Federal income tax | $0 on the premium | 22% × premium |
| Social Security (6.2%) | Yes, still withheld | None |
| Medicare (1.45%) | Yes, still withheld | None |
For that worker: the deduction returns $1,144 of federal income tax (22% of $5,200). The straight-time half of the OT check ($5,200 more) gets no special treatment at all — it is taxed like regular wages.
How to Claim the Overtime Deduction
The OBBBA overtime deduction is an above-the-line adjustment, meaning you claim it whether you itemize or take the standard deduction.
- Find your qualified overtime premium amount (see below)
- Report it on IRS Schedule 1-A, line for OBBBA overtime deduction
- The deduction reduces your adjusted gross income (AGI)
- Your tax savings = deduction amount × your marginal tax bracket
Where to Find Your Overtime Amount
For tax year 2025, check:
- • W-2 Box 14 (look for "OT Pay" or "OT Premium")
- • Your final 2025 paystub
- • Your employer's payroll or HR portal
For tax year 2026 and beyond, employers are required to report qualified overtime directly on your W-2.
Income Phase-Out Explained
If your modified adjusted gross income (MAGI) falls within the phase-out range, your deduction is reduced proportionally. Above the upper limit, you get no deduction.
| Filing Status | Full Deduction Below | No Deduction Above |
|---|---|---|
| Single | $150,000 MAGI | $275,000 MAGI (full $12,500 cap) |
| Married Filing Jointly | $300,000 MAGI | $550,000 MAGI |
Five Mistakes That Shrink Your Deduction
- Deducting your full overtime pay. Only the 0.5× premium half counts. If your last paystub shows $9,000 of gross overtime, roughly a third of that (the premium) is what enters the deduction math — not $9,000.
- Using your OT rate instead of your regular rate. The premium is regular rate ÷ 2, not OT rate ÷ 2. With a $30 regular rate, the premium is $15/hour; using the $45 OT rate would overstate your deduction by 50% and invite an IRS correction.
- Forgetting Box 14 does not exist yet for 2025. Many employers will not break out OT premium on the 2025 W-2. Save your final paystub of December — it is often your only proof of the premium amount.
- Claiming it as a 1099 contractor. The deduction is W-2 only. If you pick up gig work alongside your job, that income gets no OBBBA treatment.
- Ignoring the phase-out when planning December shifts. A big OT December can push MAGI past $150,000 (single) and claw back part of the deduction you earned earlier in the year.
Frequently Asked Questions
How is the overtime deduction different from regular overtime pay?
Regular overtime pay is taxed normally. The OBBBA creates a new deduction: only the premium half (the extra 0.5× above your base rate) can be subtracted from your taxable income. This reduces your federal income tax but does not change what your employer pays you.
What counts as qualified overtime under the OBBBA?
Qualified overtime means hours worked beyond 40 per week by a W-2 employee, paid at time-and-a-half. Only the premium portion (the 0.5× multiplier on top of your regular rate) is deductible. Salaried employees, independent contractors, and self-employed workers do not qualify.
How much can I deduct? What is the maximum overtime deduction?
Up to $12,500 for single filers or $25,000 for married filing jointly — that is the maximum overtime deduction for 2025. The deduction shrinks by $100 for every $1,000 of MAGI above $150,000 (single) or $300,000 (MFJ), so a single filer with the full $12,500 cap loses it entirely at $275,000 MAGI and a joint filer at $550,000.
Is the overtime deduction a tax credit or a refund?
Neither a credit nor an immediate refund. It is a deduction: it lowers your taxable income, so your savings equal the deduction times your marginal tax bracket. If too much tax was withheld during the year, the savings show up as a bigger refund when you file.
What percentage of my overtime pay will I get back?
The deduction never returns your full overtime premium. Your savings equal the premium portion × your marginal tax rate. If you are in the 22% bracket, every dollar of qualified overtime premium saves you 22 cents of federal income tax. In the 12% bracket, you get back 12 cents per dollar. FICA taxes (7.65%) are not refunded — they still apply to all overtime wages.
Do I need to itemize to claim the overtime deduction?
No. The OBBBA deductions are above-the-line adjustments — you can claim them whether you take the standard deduction or itemize. Report the deduction on Schedule 1-A of your federal tax return.
Does this calculator account for FICA taxes?
No. FICA taxes (Social Security 6.2% and Medicare 1.45%) still apply to all wages including overtime. The OBBBA deduction only reduces your federal income tax, not payroll taxes.
Which tax years does this apply to?
The OBBBA overtime deduction is available for tax years 2025 through 2028. For 2025, check your last paystub or W-2 Box 14 for overtime amounts. Starting with 2026, employers are required to report qualified overtime separately on your W-2.
How do I calculate my overtime deduction without a calculator?
Take your regular hourly rate, divide it by 2, and multiply by your total overtime hours for the year. That is your premium portion. For example, $30/hour ÷ 2 = $15 premium per OT hour × 400 hours = $6,000 deduction. Cap it at $12,500 (single) or $25,000 (MFJ), then reduce it if your MAGI falls inside the phase-out range.
Is the overtime deduction available in my state?
The OBBBA deduction is federal only. Whether your state honors it depends on whether your state starts from federal AGI or has its own adjustments. States that decoupled from the federal provision will tax the overtime premium as normal income. Check your state tax agency's guidance for 2025.