How do I calculate my overtime deduction?

Use the interactive calculator on the page by entering your hourly wage, overtime hours, weeks worked, and filing status to estimate your federal tax deduction.

Does this deduction affect Social Security or Medicare?

No. The deduction applies only to federal income tax, payroll taxes including Social Security and Medicare remain unchanged.

No Tax on Overtime USA 2025 – Free Deduction Calculator Online

No Tax on Overtime USA 2025 – Calculate Your Federal Tax Deduction

The One Big Beautiful Bill Act (OBBBA) introduces a federal tax deduction for qualified overtime compensation from January 1, 2025, through December 31, 2028. Workers can deduct up to $12,500 (single filers) or $25,000 (married filing jointly) of the premium portion of overtime pay from their federal taxable income. This deduction phases out for higher earners starting at $150,000 AGI (single) or $300,000 AGI (married filing jointly) – No Tax on Overtime USA.

Who Qualifies for the Overtime Tax Deduction?

Employment Status: W-2 employees classified as non-exempt under FLSA
Overtime Type: Premium portion of time-and-a-half pay required by federal law
Income Limits: Deduction phases out for higher earners
Filing Requirements: Must file jointly if married; Social Security number required

Interactive Overtime Tax Deduction Calculator

2025 Overtime Deduction Estimator

Calculate your federal tax savings from qualified overtime pay

Calculation Method

Regular Hourly Rate ($)

Overtime Hours per Week

Overtime Multiplier

Weeks Worked per Year

Filing Status

Marginal Tax Rate (%)

Adjusted Gross Income (AGI) – Optional

Understanding the 2025 Overtime Deduction

Aspect	Details
Effective Period	January 1, 2025 – December 31, 2028
Maximum Deduction	$12,500 (Single) / $25,000 (Married Filing Jointly)
Phaseout Starts	$150,000 AGI (Single) / $300,000 AGI (Married)
Eligible Pay	Premium portion of FLSA-required overtime only
Tax Impact	Federal income tax only (not payroll taxes)

State Tax Considerations for 2025

While the federal overtime deduction applies nationwide, state tax treatment varies significantly. States like California, New York, and Illinois may not conform to the federal deduction, while states like Texas and Florida (no state income tax) are unaffected. Check with your state’s tax authority or use our comprehensive tax calculator for state-specific guidance.

Frequently Asked Questions

Is overtime completely tax-free under the new law?

No, overtime is not tax-free. The law provides a federal income tax deduction on qualified overtime pay up to annual limits. Payroll taxes (Social Security, Medicare) still apply to all overtime earnings.

What counts as “qualified overtime” for the deduction?

Qualified overtime is the premium portion of overtime pay required under the Fair Labor Standards Act – typically the “half” in time-and-a-half compensation. State-mandated or voluntary overtime beyond federal requirements may not qualify.

How do I claim the overtime deduction on my tax return?

The deduction will be claimed as an above-the-line deduction when filing your 2025 federal tax return. The IRS will provide specific forms and instructions for reporting qualified overtime compensation.

Does this affect my Social Security benefits calculation?

No, because the overtime deduction only applies to federal income tax, not payroll taxes. Your full overtime earnings still count toward Social Security and Medicare calculations.

Can independent contractors claim this deduction?

The law primarily targets W-2 employees, but some 1099 contractors may qualify if their overtime meets FLSA requirements and is properly reported by the payer.

For more information on estate planning and tax strategies, visit our Estate Tax Calculator. Official guidance available at IRS.gov.