No Tax on Overtime Calculator 2026 — Your Federal Tax Savings Under OBBBA
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, created a new federal income tax deduction for overtime workers. Eligible non-exempt hourly employees can now deduct the premium portion of their overtime — the extra 0.5× above their regular rate — directly from taxable income. An estimated 17 million US workers qualify, with an average saving of over $1,400/year. This calculator shows your exact number in 60 seconds.
How to Use This Calculator
- Hourly Rate: Your regular hourly pay
- Weekly OT Hours: Overtime hours you typically work above 40
- Weeks Per Year: How many weeks you work overtime (max 52)
- Annual Income / MAGI: Your total modified adjusted gross income
- Filing Status: Single or Married Filing Jointly (MFS does not qualify)
- Tax Bracket: Your federal income tax bracket rate
📐 OBBBA No Tax on Overtime Formula (Section 70202, P.L. 119-21)
Annual OT Premium = (Hourly Rate × 0.5) × OT Hrs/Week × Weeks/Year
Deduction Cap = $12,500 (Single) | $25,000 (Married Filing Jointly)
Eligible Deduction = MIN(Annual OT Premium, Cap)
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Phase-Out (if MAGI over threshold):
Reduction = $100 per $1,000 over $150K (single) / $300K (MFJ)
Deduction = $0 at $275K (single) / $550K (MFJ)
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Federal Tax Saved = Eligible Deduction × Your Bracket Rate
📌 Real Example — Mike, Factory Worker, Ohio, $22/hr
- Works 12 OT hrs/week × 48 weeks = 576 OT hours/year
- Annual OT premium: $22 × 0.5 × 576 = $6,336
- Under cap ($12,500) and under phase-out threshold (AGI $58K): Full deduction
- Tax bracket 22%: Federal tax saved = $6,336 × 0.22 = $1,394/year
- Mike keeps $1,394 extra that he would have paid in federal income tax before OBBBA.
Who Qualifies?
- ✅ Covered by FLSA and classified as non-exempt (hourly workers, salaried non-exempt)
- ✅ Earns overtime — hours beyond 40/week paid at 1.5× your regular rate
- ✅ Has a valid Social Security Number
- ✅ Files as Single or Married Filing Jointly only (not MFS)
- ❌ Salaried exempt employees — do NOT qualify
- ❌ Independent contractors and self-employed — do NOT qualify
- ❌ Income above $275K (single) or $550K (MFJ) — deduction phases out to $0
What Is NOT Covered?
This deduction applies to federal income tax only. You still owe FICA taxes — Social Security (6.2%) and Medicare (1.45%) — on all overtime. State income taxes are also unaffected unless your state passes its own matching law. Only the premium 0.5× portion qualifies, not the full 1.5× overtime amount.
How to Claim It — W-2 and Schedule 1-A
For your 2025 tax return (filed in 2026): Check Box 14 of your W-2 — your employer may have listed qualified overtime there. If not, use IRS Schedule 1-A Part III instructions to calculate it yourself. Starting with 2026 W-2s, employers are required to report it in Box 12 with code "TT." This deduction is above-the-line — you do NOT need to itemize to claim it.
Frequently Asked Questions
Is my overtime pay completely tax-free under OBBBA?+
Not entirely. Only the premium portion — the extra 0.5× above your regular rate — is potentially deductible. You still pay federal income tax on regular wages and on the base portion of your overtime. FICA (Social Security and Medicare) also still applies to 100% of your earnings. Our calculator isolates the deductible premium portion and shows your exact federal savings.
What is the maximum I can deduct?+
The deduction cap is $12,500/year for single filers and $25,000 for married couples filing jointly. It begins to phase out once your Modified Adjusted Gross Income (MAGI) exceeds $150,000 (single) or $300,000 (MFJ). The deduction reaches $0 at $275,000 (single) or $550,000 (MFJ).
Do I need to itemize deductions to claim this?+
No. This is an above-the-line deduction under IRC Section 225. You claim it on Schedule 1-A of Form 1040 and can still take the standard deduction. No itemizing required — this makes it accessible to almost every qualifying US hourly worker.
When does the OBBBA overtime deduction expire?+
The deduction is currently set for tax years 2025 through 2028 only. After December 31, 2028, overtime returns to being fully taxable at the federal level unless Congress votes to extend it. The Joint Committee on Taxation estimates a 10-year extension would cost an additional $137 billion.
Does this apply to salaried employees?+
Only if you are a salaried non-exempt worker under FLSA — meaning you still receive overtime pay despite being on salary. Salaried exempt employees (executives, professionals, administrators earning above the $684/week FLSA threshold who meet the duties test) do not qualify. If you are unsure whether you are exempt, consult your HR department or an employment attorney.