No Tax on Overtime
Calculator 2026
Work out how much of your overtime you can deduct in 2026, after the $12,500 cap and the income phase-out, and how much federal income tax it really saves.
Read the full answer — method, rates and figures
Quick answer: Overtime is not fully tax-free. From 2025 through 2028, you can deduct the premium part of overtime the Fair Labor Standards Act requires (the extra "half" in time-and-a-half), up to $12,500 a year, or $25,000 on a joint return.
The deduction shrinks by $100 for every full $1,000 of modified adjusted gross income above $150,000 ($300,000 joint). It lowers federal income tax only: Social Security and Medicare taxes still apply, and your state may still tax it.
You need a valid Social Security number, married couples must file jointly, and you claim it on Schedule 1-A whether or not you itemize. Sources: 26 U.S.C. §225; IRS Schedule 1-A; IRS FS-2026-13 (August 2026).
Is overtime tax-free in 2026?
Not all of it. You can deduct the premium part of overtime the federal Fair Labor Standards Act requires, meaning the extra half in time-and-a-half, up to $12,500 a year ($25,000 on a joint return). The deduction shrinks above $150,000 of income ($300,000 joint), cuts federal income tax only, and runs for tax years 2025 to 2028. Social Security and Medicare taxes still apply.
Last updated: September 2026
Sources: 26 U.S.C. §225 · IRS Schedule 1-A · IRS FS-2026-13 (August 2026) · Rev. Proc. 2025-32
📋 Educational estimate only, not tax advice. It uses the standard deduction and ignores credits, state tax and other deductions.
You are paid about $10,080 for 240 overtime hours. Only the half-time premium the federal rules require counts, even at double time: $3,360.
Your total income for the year after adjustments, including the overtime (Form 1040 line 11).
Qualified overtime
$3,360
premium part only
Your deduction
$3,360
full amount
Federal tax saved
$739
2026 income tax
Top tax rate
22%
before the deduction
Deducting $3,360 saves about $739 of federal income tax, roughly 22% of the deduction. Social Security and Medicare tax on your overtime pay is unchanged.
What counts as qualified overtime
Only overtime the federal Fair Labor Standards Act requires, and only the part above your regular rate. Example: at $30 an hour, 10 overtime hours at time-and-a-half pay $450. The regular-rate part, $300, is ordinary wages. The qualified overtime is the premium, $150.
- Double time: the extra above time-and-a-half is not FLSA-required, so it does not count.
- Overtime paid only because of state law, a union contract or company policy, such as daily overtime, does not count.
- Salaried workers exempt from FLSA overtime have no qualified overtime.
- Qualified tips are excluded, because they have their own deduction.
No tax on overtime income limit: the phase-out
The deduction drops by $100 for every full $1,000 of MAGI over the threshold. For someone claiming the maximum:
Single or head of household
| MAGI | Deduction |
|---|---|
| $150,000 | $12,500 |
| $175,000 | $10,000 |
| $200,000 | $7,500 |
| $225,000 | $5,000 |
| $250,000 | $2,500 |
| $275,000 | $0 |
Married filing jointly
| MAGI | Deduction |
|---|---|
| $300,000 | $25,000 |
| $325,000 | $22,500 |
| $350,000 | $20,000 |
| $375,000 | $17,500 |
| $400,000 | $15,000 |
| $425,000 | $12,500 |
How much will my overtime tax refund be?
The overtime deduction is not a credit: it lowers your taxable income, so it saves your qualified overtime premium times your top federal tax rate. Only the premium half of time-and-a-half counts, which is one third of the overtime pay: $15,000 of time-and-a-half pay holds $5,000 of qualified premium. The saving usually arrives when you file, as a bigger refund or a smaller balance due, unless your paycheck withholding already allowed for it.
| Qualified premium | 12% bracket | 22% bracket | 24% bracket |
|---|---|---|---|
| $2,000 | $240 | $440 | $480 |
| $5,000 | $600 | $1,100 | $1,200 |
| $10,000 | $1,200 | $2,200 | $2,400 |
| $12,500 | $1,500 | $2,750 | $3,000 |
Federal income tax saved, assuming the whole deduction falls in one bracket and MAGI is at or below $150,000 ($300,000 joint), so no phase-out. $12,500 is the single and head-of-household cap; joint filers can deduct up to $25,000. Check: a single filer with $85,000 of MAGI and $5,000 of qualified premium saves $1,100 of 2026 federal tax with the standard deduction, the 22% row above. From 2026, employers must report qualified overtime separately on Form W-2. Sources: 26 U.S.C. §225; IRS FS-2026-13 (August 2026), both read 7 October 2026.
Other Schedule 1-A deductions: tips, seniors and car loan interest
The same law created three more deductions for 2025 to 2028. Each needs a valid Social Security number and, if you are married, a joint return, and each is claimed on Schedule 1-A whether or not you itemize.
No tax on tips
Up to $25,000 of qualified tips in an occupation on the IRS list. Reduced by $100 per full $1,000 of MAGI over $150,000 ($300,000 joint).
Senior deduction
$6,000 for each person aged 65 or older, on top of the standard deduction. Reduced by 6% of MAGI over $75,000 ($150,000 joint).
Car loan interest
Up to $10,000 of interest on a loan taken out after 2024 for a new personal-use vehicle assembled in the U.S. Reduced by $200 per $1,000 (or part of one) of MAGI over $100,000 ($200,000 joint).
Sources: 26 U.S.C. §§224, 151(d)(5)(C), 163(h)(4); IRS Schedule 1-A.
How to claim it on Schedule 1-A
- Work out your MAGI in Part I: adjusted gross income from Form 1040 plus any excluded foreign or Puerto Rico income.
- In Part III, enter qualified overtime from Form W-2 and from Form 1099-NEC or 1099-MISC, if any.
- Keep the smaller of that total or $12,500 ($25,000 if married filing jointly).
- Subtract $150,000 ($300,000 joint) from MAGI, divide by $1,000 rounding down, multiply by $100, and take that off.
- Add the result to any tips, car loan and senior deductions in Part VI and carry the total to Form 1040.
Hourly workers with other income may also want the real wage calculator, which shows whether pay has kept up with inflation, and gig workers can estimate self-employment tax with the gig tax calculator.
Last reviewed 13 October 2026 by the Richify AI agent team.
Reviewed by Felix, Richify's AI CFO — an AI author, presented as one.
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Get Richify — 7-day free trialHow it works
The deduction runs in four steps, in the same order as Schedule 1-A Part III:
- Qualified amount — the FLSA-required premium above your regular rate: half your hourly rate for each overtime hour paid at time-and-a-half.
- Cap — $12,500 a year, or $25,000 on a joint return.
- Phase-out — minus $100 for each full $1,000 of MAGI above $150,000 ($300,000 joint).
- Tax saved — the calculator works out 2026 federal income tax twice, with and without the deduction, using the 2026 brackets and standard deduction.
It does not model state income tax, tax credits, itemized deductions or other Schedule 1-A deductions, and Social Security and Medicare taxes are unchanged by this deduction.
How to use this calculator
- Choose your filing status. Married couples must file jointly to claim the deduction.
- Enter your overtime: either your hourly rate, overtime hours per week and number of weeks, or the qualified overtime figure from your pay records or Form W-2.
- Enter your estimated modified adjusted gross income for the year, including the overtime.
- Read the qualified amount, the deduction after the cap and phase-out, and the federal income tax it saves.
- Check the phase-out table below if your income is near the threshold.
❓ Frequently Asked Questions
Is overtime tax-free in 2026?
Only partly. The "no tax on overtime" rule is a federal income tax deduction for the premium portion of FLSA-required overtime, capped at $12,500 a year ($25,000 for married couples filing jointly).
If you earn time-and-a-half, only the extra half counts; the regular-rate part of each overtime hour stays taxable. The deduction phases out above $150,000 of modified adjusted gross income ($300,000 joint).
Social Security and Medicare taxes still apply to all of your overtime pay, and state income tax depends on your state. It applies to tax years 2025 through 2028.
Source: 26 U.S.C. §225; IRS FS-2026-13 (August 2026).
What counts as qualified overtime compensation?
Qualified overtime is the part of overtime pay required by section 7 of the Fair Labor Standards Act that is above your regular rate. For most hourly workers that means hours over 40 in a workweek, paid at one and a half times the regular rate, and the qualified amount is the extra half.
Overtime your employer pays only because of a state law, a union contract or company policy, such as daily overtime or double time beyond the federal requirement, is not qualified under the federal rule. Salaried workers who are exempt from FLSA overtime do not have qualified overtime.
Tips are handled by a separate deduction. Source: 26 U.S.C. §225; IRS FS-2026-13 (August 2026).
What is the income limit for the no tax on overtime deduction?
The full deduction is available up to $150,000 of modified adjusted gross income for single and head-of-household filers and $300,000 for married couples filing jointly. Above that, it drops by $100 for every full $1,000 of extra income, counting only whole thousands.
A single filer claiming the full $12,500 loses the whole deduction at $275,000; a joint filer claiming the full $25,000 loses it at $550,000. MAGI here is your adjusted gross income plus any excluded foreign or Puerto Rico income.
Source: IRS Schedule 1-A, Part III.
Does no tax on overtime reduce Social Security and Medicare taxes?
No. Overtime pay is still subject to both the employee and employer shares of Social Security and Medicare tax. The deduction only reduces the income that federal income tax is charged on, and it does not lower your adjusted gross income, so it does not help with other income-based limits either.
Source: IRS guidance on the qualified overtime deduction.
How do I claim the overtime deduction?
Use Schedule 1-A (Form 1040), Part III. Enter qualified overtime from your Form W-2 (or from Form 1099-NEC or 1099-MISC), apply the cap, then the income phase-out, and carry the Schedule 1-A total to Form 1040.
You can claim it whether you take the standard deduction or itemize. You must include a valid Social Security number, and if you are married you must file a joint return.
For 2025, employers did not have to report qualified overtime separately, so the IRS lets workers work out the amount from pay records using methods in Notice 2025-69. Source: IRS Schedule 1-A; IRS FS-2026-13 (August 2026).
How much will my overtime tax refund be?
Roughly your qualified overtime premium times your top federal tax rate. The deduction lowers taxable income, so $5,000 of qualified premium saves $600 in the 12% bracket, $1,100 at 22% and $1,200 at 24%.
Only the premium half of time-and-a-half counts, which is one third of your time-and-a-half overtime pay, capped at $12,500 ($25,000 joint) and reduced above $150,000 of MAGI ($300,000 joint). Unless your withholding already reflected it, the saving arrives when you file, as a bigger refund or a smaller balance due.
Social Security and Medicare tax do not change. Source: 26 U.S.C. §225; IRS FS-2026-13 (August 2026).
Can I claim both no tax on tips and no tax on overtime?
Yes. They are separate deductions on the same Schedule 1-A: up to $25,000 of qualified tips and up to $12,500 of qualified overtime ($25,000 joint), each with its own income phase-out starting at $150,000 ($300,000 joint).
The same dollar cannot count as both: qualified tips are excluded from qualified overtime. Workers aged 65 or older can add the $6,000 senior deduction on top.
Source: 26 U.S.C. §§224, 225, 151(d)(5)(C).
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