No Tax on Overtime Calculator

Find out how much of your overtime is deductible under the 2026 rules, how much federal tax it saves, and what it adds to each paycheck when you claim it on your W-4.

Updated October 28, 2026Checked against IRS Pub 15-T & state tables2025–2028 deductionUp to $12,500 / $25,000

Your overtime deduction

Total overtime pay / yr: $12,600
Qualified OT premium: $4,200
Deduction allowed: $4,200
Federal tax saved / yr: $924
Saved per bi-weekly check: $35.54
Your federal bracket: 22%

Only the premium half counts: at $28.00/hr you earn $42.00 per overtime hour, but just $14.00 of it is deductible. Starting with 2026 W-2s, employers report qualified overtime in box 12 with code TT.

Only the "half" counts

The biggest misunderstanding about "no tax on overtime" is how much is deductible. If you earn $28/hour, overtime pays $42/hour, but only the $14 premium is qualified overtime. Ten overtime hours a week for 50 weeks means $21,000 of overtime pay but a $7,000 deduction.

Example savings

Texas, single unless noted, 52 weeks, standard 2026 W-4:

Worker	Qualified premium	Federal tax saved	Per bi-weekly check
$22/hr, 5 OT hrs/week	$2,860	$343	$13.20
$30/hr, 10 OT hrs/week	$7,800	$1,716	$66.00
$45/hr, 12 OT hrs/week, joint	$14,040	$1,957	$75.26

Rules at a glance

Years: 2025, 2026, 2027 and 2028.
Cap: $12,500 per return; $25,000 for married filing jointly.
Phase-out: starts at $150,000 modified AGI ($300,000 joint).
Eligibility: you need a valid SSN, and married couples must file jointly.
Claiming: on Schedule 1-A, and you don't need to itemize.
FICA: not affected. Social Security and Medicare still apply to every overtime dollar.

Frequently asked questions

Is overtime tax-free in 2026?

Not entirely. You can deduct the premium portion of FLSA overtime (the extra half in time-and-a-half) from federal taxable income, up to $12,500 a year or $25,000 on a joint return, from 2025 through 2028. The rest of your overtime pay is taxed normally, and Social Security, Medicare and most state taxes still apply.

What counts as qualified overtime?

Only overtime required by the Fair Labor Standards Act (hours over 40 in a workweek for non-exempt employees), and only the premium above your regular rate. Overtime required only by state law (like California daily overtime), union contracts or employer policy doesn’t qualify, nor does the extra half of double time.

What is the income limit for the overtime deduction?

The deduction drops by $100 for every $1,000 of modified AGI over $150,000 ($300,000 joint). It phases out completely at $275,000 single or $550,000 joint.

Where is qualified overtime shown on my W-2?

Starting with tax year 2026, employers report qualified overtime in box 12 with code TT. For 2025, employers weren’t required to report it separately, so many workers had to estimate it from pay stubs.

Can I get the overtime savings in my paycheck now?

Yes. Enter your expected qualified overtime premium on Step 4(b) of a 2026 Form W-4. Your employer will withhold less federal tax. Be conservative so you aren’t under-withheld if your overtime drops.