Overtime Tax Calculator (2026)

How the No Tax on Overtime Deduction Works

Under the One Big Beautiful Bill Act (OBBBA), eligible workers may claim an above-the-line deduction for qualified overtime compensation on Form 1040 Schedule 1-A, Part III. The IRS is clear: overtime is not excluded from gross income or from FICA — you deduct a limited amount when you file.

The Correct Savings Formula (IRS / FLSA)

This calculator follows IRS FS-2026-13 and Schedule 1-A:

Example: a nurse at $35/hour with 10 OT hours/week for 50 weeks earns $26,250 in gross OT pay at 1.5×, but the qualified premium is $8,750 (½ × $35 × 10 × 50). At a 22% marginal rate, federal tax savings are about $1,925/year — not ~$11,550 from treating full OT pay as tax-free.

Key IRS Rules

• Deductible amount is the FLSA premium only (half of regular rate × OT hours), not the full overtime paycheck
• Annual cap: $12,500 per return ($25,000 if married filing jointly)
• MAGI phase-out: $100 reduction for each full $1,000 of MAGI over $150,000 ($300,000 joint)
• Claimed on Schedule 1-A; reported by employers on Form W-2 box 12, code TT (tax years after 2025)
• FICA (Social Security + Medicare) and federal withholding still apply to overtime wages unless you update Form W-4
• Available whether you itemize or take the standard deduction

Who Qualifies?

• FLSA overtime-eligible (non-exempt) employees
• Must receive overtime required under FLSA §207 (typically hours over 40/week)
• Salaried FLSA-exempt workers generally do not qualify
• Valid SSN required; married filers must file jointly to claim

Also earn tips? Pair this with our No Tax on Tips Calculator ($25,000 tip deduction on Schedule 1-A Part II).

Industries That Benefit Most

Savings scale with qualified premium (not total OT pay) and your marginal rate, up to the cap:

• Healthcare — Heavy OT schedules; premium often approaches the $12,500 cap for higher-wage RNs.
• Manufacturing & warehouse — Steady OT weeks; mid-wage workers often deduct a few thousand in premium.
• Construction & trades — Seasonal OT; skilled rates make the half-premium meaningful.
• Public safety — Extra shifts may qualify when paid as FLSA overtime cash (comp-time rules differ).

Three Worked Examples (Premium-Based)

Example 1: Warehouse Worker

Example 2: Registered Nurse

Example 3: Construction Electrician

Frequently Asked Questions

Is overtime pay tax-free / exempt from income?

No. The IRS states the deduction does not mean overtime is excluded from gross income. You still report OT wages; you may deduct qualified premium (subject to caps and MAGI) on Schedule 1-A.

Why only half of time-and-a-half?

Qualified overtime compensation is the amount of FLSA-required overtime pay in excess of the regular rate — the “half” in time-and-a-half. That is what employers report as W-2 box 12 code TT.

Does double-time increase my deduction?

Usually not. If your employer pays more than FLSA requires (e.g., 2×), only the amount minimally necessary under FLSA §207 (typically the half-premium) is qualified overtime compensation (IRS FS-2026-13 Q16).

Do I qualify if I'm salaried but work overtime?

Generally only if you are FLSA overtime-eligible and actually receive qualified overtime compensation. Many salaried exempt employees do not.

Can I claim both tips and overtime deductions?

Yes — tips on Schedule 1-A Part II (up to $25,000) and overtime on Part III (up to $12,500 / $25,000 joint), each with its own MAGI phase-out math. Use the tips calculator with this tool.

Will my employer stop withholding on overtime?

Not automatically. IRS guidance says employers generally must still withhold on OT wages; you can estimate the deduction on Form W-4 step 4(b) or use the IRS Tax Withholding Estimator.

What about compensatory time?

Special rules apply for certain public employees; cash-out of accrued comp time can create qualified overtime in the year paid. Private-sector cash OT is the common case this calculator models.

Related Tools

No Tax on Tips Calculator · Schedule 1-A Guide · W-2 Box 12 Codes TP & TT · OBBBA FAQ

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