No Tax on Overtime Deduction Calculator

• Finds the "half" of time-and-a-half that qualifies, from your regular rate and overtime hours, or uses the figure from your tax forms.
• Applies the $12,500 cap ($25,000 married filing jointly) and the income phase-out of $100 per $1,000 above $150,000 ($300,000 joint).
• Shows the federal income tax you save by comparing your tax with and without the deduction.
• Explains that payroll taxes still apply to overtime, and that exempt employees do not qualify.

How to use this calculator

Choose your filing status, enter your regular hourly rate, the overtime hours you worked in the year, and your modified adjusted gross income (MAGI). Confirm that you are a non-exempt employee covered by federal overtime rules. If your employer reported the qualified overtime amount on a tax form, enter it under Advanced and the calculator will use it in place of the hours and rate.

Why only half of your overtime counts

The law deducts only the overtime premium that the Fair Labor Standards Act requires. When you are paid time-and-a-half, the first part of each overtime hour is your ordinary rate and is taxed as wages as usual. Only the extra half is qualified overtime compensation. At a regular rate of $28 an hour, an overtime hour pays $42, of which $14 is the deductible premium.

If an employer or a contract pays more than the law requires, such as double time, the extra above the legally required premium does not count. Overtime that federal law does not require does not count either.

How the deduction is calculated

Qualified overtime  = regular rate x 0.5 x overtime hours
Before phase-out    = lesser of qualified overtime or the cap ($12,500; $25,000 joint)
Excess income       = MAGI minus $150,000 ($300,000 if married filing jointly)
Reduction           = $100 x (excess income / $1,000, rounded down)
Deduction           = before phase-out minus reduction (not below zero)

A worked example

A single warehouse worker earns $28 an hour, works 250 overtime hours and has a MAGI of $68,000. Qualified overtime is $28 x 0.5 x 250 = $3,500. Income is below the $150,000 threshold, so the deduction is $3,500. Taxable income falls from $51,900 to $48,400, and federal income tax drops by about $570.

A married couple filing jointly with $140,000 of MAGI and 600 overtime hours at $30 an hour has $9,000 of qualified overtime, well under the $25,000 joint cap, so the full $9,000 is deductible.

Payroll tax still applies

The deduction lowers federal income tax only. Social Security and Medicare tax continue to come out of all overtime pay. Many states tax overtime as usual, so check your state's rules.

Assumptions and limitations

• Tax years 2025 through 2028. The deduction is temporary.
• Time-and-a-half is assumed. The hours-and-rate method assumes the legally required rate of 1.5 times your regular rate. Use the figure from your tax forms if yours differs.
• Regular rate. Under federal law the regular rate can include non-discretionary bonuses and shift differentials, so it may be higher than your base wage.
• Eligibility is not checked. You confirm that you are a non-exempt employee. A Social Security number valid for work must be on the return, and married couples must file jointly.
• Federal only. Credits and state taxes are not modelled.

Common mistakes

Deducting all overtime pay. Only the premium half of time-and-a-half qualifies.

Assuming salaried means eligible. Employees who are exempt from federal overtime rules do not qualify, whatever their pay.

Overlooking the phase-out. Households above $150,000 ($300,000 joint) lose $100 of deduction for every $1,000 over the line.

Filing separately. Married couples must file jointly to claim it.

Frequently asked questions