Should I divide my total overtime pay by 3?

Only if you are looking at a total 1.5x overtime earnings figure on a paystub or a 2025 year-end statement that combines your 1.0x base wage and 0.5x overtime premium together (since 0.5 divided by 1.5 equals one-third). Do NOT divide the number in Form W-2 Box 12, code TT by 3—your employer has already isolated the 0.5x FLSA premium in Box 12 code TT.

Why did my employer still take federal taxes out of my overtime check?

Because overtime wages remain included in Box 1 gross wages and standard payroll withholding tables still apply unless you submit an updated Form W-4 using the IRS Tax Withholding Estimator. Even with the deduction, the straight-time two-thirds of your 1.5x overtime pay and 7.65% FICA tax are never refunded.

What is the income phase-out for the overtime deduction?

The deduction phases out by $100 for every full $1,000 of Modified Adjusted Gross Income (MAGI) above $150,000 for Single/Head of Household filers (fully gone at $275,000) and above $300,000 for Married Filing Jointly (fully gone at $550,000). Married Filing Separately is ineligible at any income.

Does California or my state exempt overtime from state income tax?

Nine states have no wage income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY). Among income-tax states, California, Colorado, New York, and Wisconsin do not conform to IRC §225 and still tax full overtime pay. A select group of states—including Michigan (PA 24 of 2025 for 2026–2028), Indiana (for 2026), Idaho, Iowa, Montana, North Dakota, and Oregon—allow a state deduction.

No Tax on Overtime Calculator (2026–2027): W-2 Box 12 Code TT & Paystub Estimator

Q: What is W-2 Box 12 code TT?

Starting with 2026 Form W-2s (furnished in January 2027), employers must report your qualified FLSA overtime premium in Box 12 using code TT. This figure represents only the 0.5x extra half-time pay and goes onto Schedule 1-A, Part III, Line 14a.

Calculate your exact federal overtime deduction on Schedule 1-A (IRC §225). Isolate the deductible 0.5× FLSA half-time premium from your hourly rate, YTD paystub (÷3 rule), or Form W-2 Box 12 Code TT—and see why federal tax is still withheld from your paycheck.

✔️ Tax Years 2025–2028 (OBBBA) ✔️ W-2 Box 12 Code TT + IRS ÷3 Rule ✔️ Checked against IRS FS-2026-13

Last verified: October 17, 2026 · Rules verified against IRS Fact Sheet FS-2026-13, Schedule 1-A Instructions, and IRS W-4 Withholding Updates.

Step 1: Choose how to enter your overtime

1. Estimate from Hourly RateHourly wage, weekly OT hours & weeks 2. Total YTD Overtime PaystubApplies IRS ÷3 (1.5×) or ÷4 (2.0×) rule 3. W-2 Box 12 Code TT AmountAlready isolated 0.5× premium (do not divide)

Quick fill: profession preset

Presets load realistic starting numbers. Police/fire (§207(k)) and some motor-carrier drivers follow special FLSA threshold rules.

Step 2: Overtime Earnings & FLSA Check

Regular Hourly Rate (FLSA Base Rate)

Include shift differentials or non-discretionary bonuses if they raise your FLSA regular rate.

FLSA Overtime Hours Per Week (Over 40 hrs) Count only hours over 40 in a workweek required by the federal FLSA.

Weeks Worked With Overtime Per Year

Are these hours required under the federal FLSA?

Overtime Pay Rate Multiplier IRC §225 deducts only the 0.5× FLSA half-time premium, even when your employer pays 2.0× double time.

Total Gross Overtime Pay on Paystub ($)

Enter your combined overtime earnings (base + premium together) from your paystub or 2025 year-end statement.

IRS Paystub Extraction Rule (Notice 2025-69 / FS-2026-13) At 1.5× time-and-a-half, two-thirds of your overtime check is regular base pay and exactly one-third (÷3) is the deductible 0.5× FLSA premium.

Form W-2, Box 12, Code TT Amount ($)

Do not divide this number by 3. Your employer has already isolated the 0.5× FLSA overtime premium in Box 12, code TT. If married filing jointly, add both spouses’ code TT amounts together.

Marginal Federal Income Tax Bracket

Step 3: Filing Status, MAGI & State Conformity

Filing Status (Schedule 1-A Gate)

Modified Adjusted Gross Income (MAGI, $/year)

Phase-out reduces your cap by $100 per full $1,000 of MAGI above $150,000 (Single) or $300,000 (Joint).

State Overtime Tax Status (2026 Verified Rules) California FTB, Colorado, and Wisconsin (AB 461 vetoed) still tax overtime in full. Michigan (PA 24) and Indiana (#128) allow the deduction.

Your State Marginal Income Tax Rate (%) E.g., Michigan is 4.25%, Indiana is 3.0%.

Include illustrative state tax savings (only if your state conforms to IRC §225).

Paycheck Frequency (for Form W-4 Paycheck Boost)

Your Schedule 1-A Overtime Decision Verdict

⚠️ Married Filing Separately is ineligible: IRC §225(f) requires married taxpayers to file a joint return to claim the qualified overtime deduction. Filing separately yields $0 deduction.

Estimated Federal Tax Saved (Schedule 1-A)

$1,650

Refunded at filing (or via reduced W-4 withholding)

If You Update Form W-4 Now

+$63 / check

Across 26 biweekly paychecks instead of waiting for your 2027 refund

Gross Overtime Pay (1.5×)$22,500

Qualified 0.5× Premium (Code TT)$7,500

Allowable Schedule 1-A Deduction$7,500

Why your paycheck still had federal tax withheld: Out of your $22,500 in total overtime earnings, $15,000 is regular straight-time base pay (fully taxed) and only $7,500 is the deductible 0.5× FLSA premium. Your employer withheld roughly $4,950 in federal income tax on your overtime during the year—and Schedule 1-A gives back $1,650 (one-third of the income tax), while 7.65% FICA ($1,721 on total OT) is never refunded.

Total Gross Overtime Earnings (Base + Premium)$22,500

Total Overtime Premium Paid Above Base Wage$7,500

FLSA-Qualified 0.5× Premium (W-2 Box 12, Code TT)$7,500

Statutory Annual Cap (IRC §225)$12,500

MAGI Phase-Out Reduction ($100 per full $1,000 over limit)-$0

Allowable Federal Deduction (Schedule 1-A, Line 21)$7,500

Estimated Federal Income-Tax Savings$1,650

Estimated State Income-Tax Savings$0 (non-conforming state)

Unrefunded FICA Payroll Tax on Qualified Premium (7.65%)$574

Social Security (6.2%) and Medicare (1.45%) apply to 100% of overtime wages. IRC §225 reduces only federal taxable income on Form 1040 Line 13b.

Cap Reached: Your qualified 0.5× overtime premium exceeds your filing-status cap ($12,500 Single / $25,000 Joint). Any overtime above $37,500 total 1.5× pay (Single) or $75,000 total 1.5× pay (Joint) adds $0 extra federal tax deduction.

💡 Also bought or financed a car in 2025–2027? You can stack up to $10,000 in car loan interest on the exact same Schedule 1-A form. Test Car Loan & Refi Savings →

2026–2027 W-2 Reporting Alert: The qualified overtime compensation deduction (IRC §225, enacted under the July 4, 2025 One Big Beautiful Bill Act for tax years 2025–2028) is now under mandatory employer reporting. Starting with 2026 Form W-2s (issued in January 2027), employers must report your deductible 0.5× FLSA overtime premium in Box 12, code TT. Under IRS Fact Sheet FS-2026-13 (FAQ 20), you can only deduct what appears in Box 12, code TT—if your employer leaves it blank or miscalculates it, you must request a corrected Form W-2c.

Quick Answer: How do I calculate my “No Tax on Overtime” deduction?

Divide your total 1.5× time-and-a-half overtime pay by 3 (or multiply your base hourly rate by 0.5 × FLSA overtime hours) to isolate the half-time premium, cap that number at $12,500 (Single/HoH) or $25,000 (Married Filing Jointly), and multiply by your marginal federal tax bracket (10% to 35%). If you already have your 2026 W-2, enter the exact figure from Box 12, code TT without dividing it again.

How to Use This Calculator in 4 Steps

Pick your pay record

Use Hourly Rate & Hours, Total YTD Overtime Pay (÷3 rule), or W-2 Box 12 code TT.

Check FLSA 40-hr rule

Only hours above 40 in a workweek required by the federal FLSA qualify under IRC §225.

Check MAGI & State

Apply the $150k/$300k MAGI phase-out and check whether your state conforms.

Decide: W-4 vs. Refund

See whether to claim your savings lump-sum on Schedule 1-A or boost every paycheck via Form W-4.

Why “Divide Total Overtime by 3” Works (And When NOT to Do It)

One of the biggest mistakes workers make in 2026 and 2027 is confusing total overtime pay (1.5×) with qualified overtime premium (0.5×). When you work an hour of time-and-a-half overtime at a $30/hour base rate, you earn $45/hour. However, the first $30 is your regular base wage—only the extra $15/hour (the 0.5× premium) qualifies for the IRC §225 deduction.

Because $0.5 \div 1.5 = \frac{1}{3}$, your deductible overtime premium is always exactly one-third (÷3) of your total time-and-a-half overtime earnings (and one-fourth, ÷4, if your employer paid 2.0× double time on FLSA overtime hours). Follow this rule based on the document in front of you:

Document / Record You Have	What the Number Includes	Exact Math to Get Qualified Overtime
2026+ Form W-2, Box 12, Code TT	Already isolated 0.5× FLSA premium	Use × 1 (Enter as-is — DO NOT divide by 3)
YTD Paystub / 2025 Statement: Total 1.5× OT Pay	1.0× base pay + 0.5× overtime premium combined	Divide total 1.5× overtime pay by 3 (÷ 3)
YTD Paystub / 2025 Statement: Total 2.0× Double-Time Pay	1.0× base pay + 1.0× double-time premium combined	Divide total 2.0× pay by 4 (÷ 4)
Paystub Showing Separately Stated 2.0× Premium Only	1.0× premium above base pay	Divide separately stated 2.0× premium by 2 (÷ 2)
Hourly Rate & Weekly FLSA Overtime Hours	Raw wage and hours over 40/week	Regular Hourly Rate × 0.5 × FLSA OT Hours

💡 Why you only get back roughly 1/3 of the federal tax withheld on overtime

Suppose you earned $18,000 in total 1.5× overtime pay this year and sit in the 22% federal bracket. Across your paychecks, your employer withheld roughly $3,960 in federal income tax plus $1,377 in FICA on that overtime. At tax time, only one-third ($6,000) is deductible on Schedule 1-A, saving you $1,320 ($6,000 × 22%). You still pay the remaining $2,640 of federal income tax on the straight-time portion plus the full $1,377 of FICA.

2026–2027 Overtime Deduction Caps, MAGI Phase-Out & Tax Savings Table

Your qualified 0.5× overtime premium is capped at $12,500 for Single / Head of Household filers (which corresponds to $37,500 of total 1.5× overtime pay) and $25,000 for Married Filing Jointly (corresponding to $75,000 of total 1.5× overtime pay). Above $150,000 MAGI (Single) or $300,000 MAGI (Joint), the cap shrinks by $100 for every full $1,000 of excess MAGI:

Total 1.5× Overtime Pay	Deductible 0.5× Premium (Code TT)	Tax Saved (12% Bracket)	Tax Saved (22% Bracket)	Tax Saved (24% Bracket)
$3,000	$1,000	$120	$220	$240
$6,000	$2,000	$240	$440	$480
$12,000	$4,000	$480	$880	$960
$18,000	$6,000	$720	$1,320	$1,440
$27,000	$9,000	$1,080	$1,980	$2,160
$37,500 (Single Max Cap)	$12,500	$1,500	$2,750	$3,000
$75,000 (Joint Max Cap)	$25,000	$3,000	$5,500	$6,000

State Overtime Tax Conformity Guide (2026–2027 Verified Status)

Because the IRC §225 overtime deduction is claimed on Schedule 1-A (below the Federal Adjusted Gross Income line on Form 1040), it does not automatically flow into state income tax returns in states that start with federal AGI. Here is how states treat your overtime deduction for 2026–2027:

9 States With Zero Wage Income Tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming never tax overtime wages.
Confirmed Non-Conforming States (Overtime Still Taxed in Full): California (FTB summary of PL 119-21 §70202 confirms non-conformity; California daily overtime after 8 hours also does not qualify for federal IRC §225 unless weekly hours exceed 40), Colorado (opted out for overtime), New York, and Wisconsin (2025 AB 461 veto sustained).
Confirmed Conforming / Deduction States: Michigan (Public Act 24 of 2025 allows the IRC §225 deduction for tax years 2026–2028), Indiana (DOR Information Bulletin #128 allows the deduction for tax year 2026), plus Idaho, Iowa, Montana, North Dakota, Oregon, and Arizona (via executive action).

How to Claim on Schedule 1-A (Form 1040) vs. Adjusting Your Form W-4

You have two choices for how to collect your tax savings in 2026 and 2027:

Wait and claim the lump-sum refund on Schedule 1-A: Leave your paycheck W-4 alone, let your employer withhold normal taxes all year, and enter your W-2 Box 12 code TT amount on Schedule 1-A, Part III, Line 14a when you file. The total from Schedule 1-A flows to Form 1040, Line 13b to reduce your taxable income.
Boost every paycheck now by updating Form W-4: The IRS updated its Tax Withholding Estimator to account for OBBBA overtime, tip, and car loan interest deductions. Entering your expected annual deduction on Form W-4 Step 4(b) lowers your federal withholding on every biweekly check immediately.

⚠️ Turning Salaried Non-Exempt in 2027? Check State Threshold Cliffs

Salaried FLSA-exempt workers get $0 deduction under IRC §225. However, if you are reclassified to FLSA non-exempt—or if your employer converts you to hourly when state exempt salary thresholds rise on January 1, 2027—any FLSA overtime hours you work over 40/week become eligible. Use our Overtime Pay (1.5×) Calculator to model your hourly conversion.

Frequently Asked Questions: No Tax on Overtime & Code TT

Is overtime pay really tax-free in 2026 and 2027?

No. “No tax on overtime” is a federal income tax deduction under IRC §225, not a blanket exemption. Eligible workers deduct only the 0.5× FLSA overtime premium (up to $12,500 Single or $25,000 Married Filing Jointly) from federal taxable income on Schedule 1-A for tax years 2025 through 2028. Social Security (6.2%), Medicare (1.45%), the straight-time 1.0× base wage of your overtime hours, and most state income taxes still apply in full.

Should I divide my overtime by 3?

Only if you are looking at a paystub or 2025 statement that combines your 1.0× regular pay and 0.5× overtime premium into one total 1.5× overtime earnings number (since 0.5 ÷ 1.5 = 1/3). Never divide the amount reported in Form W-2, Box 12, code TT—your employer has already isolated the 0.5× premium for you.

What is W-2 Box 12 code TT and what if my employer gets it wrong?

Code TT in Box 12 of Form W-2 is the mandatory box where employers report your qualified FLSA overtime premium starting with tax year 2026 W-2s (issued in January 2027). Under IRS Fact Sheet FS-2026-13, for tax years 2026–2028 you cannot deduct more than the Box 12 code TT figure using your own paystubs—if your employer omitted or underreported it, you must request a corrected Form W-2c.

Do California daily overtime hours (over 8 hours/day) count?

Not unless those same hours also push you over 40 hours worked in the workweek. IRC §225 covers only overtime required under Section 7 of the federal Fair Labor Standards Act (FLSA). Daily overtime required solely by state law (such as California’s 8-hour daily rule), union collective bargaining agreements, or holiday double-time policies does not count.

What is the MAGI phase-out for the overtime deduction?

Your capped deduction is reduced by $100 for every full $1,000 of Modified Adjusted Gross Income (MAGI) over $150,000 (Single / Head of Household) or $300,000 (Married Filing Jointly). That eliminates a full $12,500 single deduction at $275,000 MAGI and a full $25,000 joint deduction at $550,000 MAGI.

Can I stack the overtime deduction with the $10,000 Car Loan Interest Deduction?

Yes. Both deductions live on the new Schedule 1-A (Form 1040) and can be claimed together even if you take the Standard Deduction. Qualifying buyers of new US-assembled vehicles financed in 2025–2028 can deduct up to $10,000/year in car loan interest on top of their qualified overtime deduction.

Methodology: How This Calculator Computes Your Savings

This calculator implements the statutory rules of IRC §225 (enacted by Public Law 119-21, §70202) and IRS Fact Sheet FS-2026-13 across three input modes: (1) Hourly Estimate Mode computes qualified overtime as $0.5 \times \text{Regular Rate} \times \text{Weekly FLSA Overtime Hours} \times \text{Weeks}$; (2) YTD Paystub Mode applies the IRS Notice 2025-69 / Schedule 1-A transition extraction factors ($\div 3$ for aggregate 1.5× pay, $\div 4$ for aggregate 2.0× pay, or $\div 2$ for separately stated 2.0× premium); and (3) W-2 Code TT Mode takes the employer-reported Box 12 code TT figure directly ($\times 1$).

Next, the tool applies the filing-status ceiling ($12,500 Single/HoH, $25,000 MFJ, $0 MFS) and subtracts the Schedule 1-A phase-out: $\lfloor \max(0, \text{MAGI} – \text{Threshold}) / 1,000 \rfloor \times \$100$. Estimated federal savings equal the allowable deduction multiplied by your selected marginal bracket, and the biweekly W-4 boost divides annual federal savings by your chosen pay-period count (24, 26, 27, or 52).

Official Primary Sources

Complete Your 2026–2027 Paycheck & Tax Decision Check

Disclaimer This is an independent educational estimation tool published by Ultimate Info Guide and is not affiliated with or endorsed by the Internal Revenue Service (IRS) or the U.S. Department of the Treasury. Calculations reflect IRC §225 enacted under Public Law 119-21 (OBBBA) and IRS guidance current through October 2026 (FS-2026-13). Always verify your W-2 Box 12 code TT reporting, Schedule 1-A eligibility, and state tax conformity with a licensed CPA or tax professional before filing or changing your Form W-4.