No Tax on Overtime Calculator 2026: Free Savings Estimator
This free calculator estimates your federal “no tax on overtime” deduction under the One Big Beautiful Bill Act (OBBBA) — including the FLSA premium-only rule, the income phase-out, and your filing-status cap. No sign-up required.
Is overtime really tax-free in 2026?
No. Under the OBBBA, eligible workers can deduct their qualified overtime premium — the extra half of time-and-a-half pay, not the full overtime paycheck — from federal taxable income, up to $12,500 (single) or $25,000 (joint) per year, phasing out above $150,000 / $300,000 MAGI. Social Security, Medicare, and most state income taxes still apply. See the calculator and breakdown below for your numbers.
“No tax on overtime” is one of the most misunderstood tax changes of 2026. It doesn’t make overtime pay tax-free.
It creates a temporary federal income tax deduction for the FLSA overtime premium, capped by filing status and reduced for higher earners.
This calculator runs the actual statutory math: it isolates the deductible premium from your total overtime pay, applies your filing-status cap, and checks whether the MAGI phase-out reduces it. It also shows what you still owe regardless — payroll taxes, and in most states, state income tax.
Using it takes under a minute. Enter your regular hourly rate, weekly overtime hours, weeks worked, and the multiplier your employer actually pays for overtime.
Set your filing status and household MAGI. The deduction phases out above $150,000 (single) or $300,000 (joint), and is unavailable entirely to Married Filing Separately filers.
Then pick your state to see whether it taxes wages at all, and confirm separately whether your state currently allows this deduction against state tax — since most don’t yet.
Every rule used here — the premium-only calculation, the phase-out formula, the filing-status exclusion, the FICA carve-out — is explained in full, with sources, in the Methodology section below.
How to Use the No Tax on Overtime Calculator
Enter your pay details
Your regular hourly rate, weekly overtime hours, weeks worked, and the multiplier your employer actually pays.
Set filing status & income
Single, Joint, or MFS, plus household MAGI — this sets your cap and checks the phase-out.
Select your state
See if your state taxes wages at all, then confirm separately if it currently allows this deduction.
Review your savings
See your qualified premium, cap, phase-out reduction, and estimated federal/state savings.
Results
What “No Tax on Overtime” Actually Means
The phrase “no tax on overtime” refers to a provision of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. It created a new, temporary federal income tax deduction — codified at IRC §225 — for “qualified overtime compensation.” It runs for tax years 2025 through 2028 and, absent further legislation, expires after that.
It is a deduction, not an exemption. Overtime pay is still reported as ordinary income, and 100% of it is still subject to payroll withholding throughout the year.
The benefit shows up when you file your return: you subtract your qualified overtime premium — up to the cap — from your taxable income, which lowers your federal tax bill or increases your refund. According to Treasury Department figures, more than 29 million taxpayers claimed the deduction for the 2025 tax year, with an average deduction above $3,100.
💡 Only the “premium,” not the paycheck
The deduction covers only the FLSA overtime premium: the extra 0.5× on top of your regular rate that federal law requires for hours over 40 in a week. If your regular rate is $20/hour and you’re paid $30/hour for overtime, only the $10/hour premium is deductible — the other $20/hour was already taxed the same as regular wages, deduction or not.
How the Deduction Is Calculated
The qualifying amount is your FLSA overtime premium: 0.5 × your regular hourly rate × qualifying overtime hours. If your employer voluntarily pays more than time-and-a-half (double time, holiday premiums, etc.), the extra above the FLSA-required 0.5× is real income but isn’t part of the deductible amount. That qualifying premium is then capped and, for higher earners, reduced by the phase-out below.
| Filing Status | Annual Deduction Cap | Phase-Out Starts | Fully Phased Out At |
|---|---|---|---|
| Single / Head of Household | $12,500 | $150,000 MAGI | ~$275,000 MAGI |
| Married Filing Jointly | $25,000 | $300,000 MAGI | ~$550,000 MAGI |
| Married Filing Separately | $0 — not eligible | — | — |
The Income Phase-Out, With an Example
Once MAGI exceeds the threshold, the deduction is reduced by $100 for every $1,000 of MAGI above it — not eliminated outright. For a single filer with $190,000 MAGI: the excess over $150,000 is $40,000, so the reduction is ($40,000 ÷ $1,000) × $100 = $4,000. Their allowable deduction is $12,500 − $4,000 = $8,500, assuming their qualifying premium was at least that much.
Most hourly overtime workers earn well under $150,000, so the phase-out won’t apply to them at all — it mainly affects higher earners with significant other household income.
Who Can’t Claim It
- Married Filing Separately filers — excluded entirely by statute, at any income level.
- Salaried, FLSA-exempt employees — the deduction only applies to overtime required under the Fair Labor Standards Act; if you don’t legally qualify for FLSA overtime, you have no “qualified overtime compensation” to deduct.
- Overtime required only by state law or a union contract, beyond what FLSA requires — only the federally-mandated portion counts, even if your state or contract requires a richer overtime rate.
- Very low earners with no federal income tax liability — the deduction reduces taxable income, so it has no value if you don’t owe federal income tax in the first place.
What Still Gets Taxed
⚠️ Payroll taxes are unaffected
Social Security (6.2%) and Medicare (1.45%) — 7.65% combined — are still withheld from every dollar of overtime pay, deduction or not. Your employer still pays its matching share. This deduction only changes what you owe in federal income tax when you file.
The same goes for the straight-time portion of your overtime hours: the base rate you’d have earned anyway is taxed exactly like regular wages. Only the premium half is deductible, and only up to the cap.
Does Your State Tax Overtime Too?
Nine states have no tax on wage income at all, so overtime pay is already untaxed there regardless of federal rules: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Everywhere else, whether the federal deduction also lowers your state tax bill depends entirely on whether your state’s legislature has separately voted to adopt it.
Most states use federal adjusted gross income (AGI) as their own starting point for state tax — a figure calculated above where this deduction applies on the federal return. So the deduction doesn’t automatically flow through to state returns; a state has to pass its own conformity legislation for residents to get the benefit at the state level.
As of mid-2026, this is a fast-moving, state-by-state situation. Some states have acted or are actively considering it, others have explicitly declined to conform, and many hadn’t decided either way.
Because that status changes with each legislative session, this calculator doesn’t guess for you. Check your own state’s treatment before assuming your state savings are real, and only tick the confirmation box above if you’ve verified it.
Worked Example
A single warehouse worker earning $22/hour, working 8 overtime hours/week at the standard 1.5× rate, 50 weeks/year, MAGI $58,000, 12% federal bracket, no state income tax:
- FLSA-qualified premium: $22 × 0.5 × 8 × 50 = $4,400
- Deduction cap (single): $12,500 — premium is under the cap, so nothing is lost to the cap
- MAGI is under $150,000, so no phase-out reduction applies
- Allowable federal deduction: $4,400
- Estimated federal tax savings at 12%: $4,400 × 12% = $528
- FICA still owed on the $4,400 premium (7.65%): $336.60 — unaffected by this deduction
How to Claim the Deduction
You claim it on Schedule 1-A, filed alongside Form 1040. For the 2025 tax year, the IRS gave employers transition relief and didn’t require them to separately report qualified overtime on the W-2, so many workers had to estimate the amount from pay stubs or a year-end payroll statement. Starting with tax year 2026, employers are required to report the qualifying amount in Box 12 using code TT on the W-2, which should make the 2026 filing season simpler than the first year.
Frequently Asked Questions — No Tax on Overtime Calculator
Is overtime pay really tax-free in 2026?
Is this deduction a proposal or is it actually law?
How much of my overtime pay can I actually deduct?
What is the income phase-out for the overtime deduction?
Can married couples filing separately claim the overtime deduction?
Do I still pay Social Security and Medicare tax on overtime?
Does my state also exempt overtime from tax?
How do I actually claim the deduction on my tax return?
Methodology — How This Calculator Works
The FLSA-qualified overtime premium is calculated as 0.5 × your entered regular hourly rate × weekly overtime hours × weeks worked per year. This fixed 0.5× multiplier reflects the statutory FLSA premium regardless of what overtime multiplier you select, since only that portion is deductible under IRC §225. The multiplier you choose is used only to show your total overtime premium pay generated, for comparison.
The qualifying amount is capped at $12,500 for Single/Head of Household or $25,000 for Married Filing Jointly, and reduced to $0 for Married Filing Separately regardless of any other input.
If entered MAGI exceeds $150,000 (single) or $300,000 (joint), the cap is reduced by $100 for every $1,000 of MAGI above the threshold, floored at $0 — matching the statutory phase-out formula described in current IRS guidance.
Federal tax savings are estimated by multiplying the allowable deduction by a single selected federal bracket — this is a simplification and does not model your full progressive tax return, standard deduction, or other credits.
State tax savings are only calculated if you’ve checked the box confirming your state currently allows the deduction against state tax. Otherwise the calculator shows $0 in state savings even if a state rate is entered, since assuming conformity that doesn’t exist would overstate your actual savings.
FICA (payroll tax) owed is shown as a fixed 7.65% of your total overtime premium pay, for context. It isn’t affected by this deduction in any way and is not part of the “savings” total.
This calculator does not model: self-employment tax treatment, the separate “No Tax on Tips” deduction, other above-the-line deductions or credits that affect MAGI, or account-specific state legislation passed after publication. All figures reflect enacted federal law (OBBBA, IRC §225) as published through mid-2026 and are estimates for planning purposes only.
Related Tools
💰 More Paycheck & Tax Tools
Calculating your overtime savings is just step one. To get the full financial picture, you need to look at your regular paycheck too. Check out these other free tools to estimate your take-home pay or contractor taxes.
The No Tax on Overtime Calculator estimates your potential take-home pay under the 2026 tax proposal. It separates your "Base Pay" from your "Premium Pay" to determine exactly how much of your overtime earnings could be federally tax-free based on your state and filing status.
How to Use This Calculator
We built this tool to cut through the noise and give you a real dollar amount. Here is the easiest way to get an accurate number:
- Select Your State First: This is the most important step. Tax laws in Texas are completely different from California. The tool will adjust the math based on where you live.
- Pick Your Job: You can use the "Quick Fill" buttons for common jobs like Nursing or Trucking, or just type in your exact hourly rate.
- Add Your Overtime: Be honest with your averages. If you usually work 50 hours a week, put 10 in the overtime box. Make sure the multiplier (1.5x or 2.0x) matches your pay stub.
- See Your Savings: Hit the blue button. We'll show you exactly how much extra cash you could keep in 2026 using this No Tax on Overtime Calculator compared to old rules.
What is the "No Tax on Overtime" Act?
If you work hourly, this might be the biggest change to your paycheck in decades. The idea is simple: work more hours, keep more of your money.
But here's what most people don't realize: This law doesn't make your entire paycheck tax-free. It also doesn't mean every single dollar earned during overtime is untaxed. The legislation is very specific about which part of your pay gets the tax break.
Also, where you live matters—a lot. If you are in a state with high income tax that doesn't follow federal rules (like California), your savings will look very different from someone in Florida. You can track the bill's current status on Congress.gov.
How the Math Actually Works
To see where the savings come from, you have to stop looking at your overtime pay as one big number. The IRS sees it as two separate buckets.
💰 The 3-Step Breakdown
Let's say you earn $30/hour. When you work overtime, you earn $45/hour. Here is how the tax cut splits that up:
- 🔹 The "Old" Money ($30): The first $30 of that overtime hour is treated just like your normal Tuesday morning shift. It gets taxed at the standard rate. No change here.
- 🔹 The "New" Money ($15): That extra $15 "half-time" premium? This is the tax-free part. The government allows you to deduct this specific amount from your income.
- 🔹 The Double-Time Bonus: If you work holidays at 2.0x pay, the tax break gets massive. Since your base is 1.0x, the entire second 1.0x is premium pay. That means half your earnings for that day could be federally tax-free.
Do You Qualify?
This tax break is tied to labor laws. In plain English: if you are an hourly worker who gets time-and-a-half, you likely qualify. If you are a salaried manager, you probably don't.
✅ Who Wins Big?
- Nurses & Healthcare: Hospitals run on overtime. If you are picking up extra 12-hour shifts or crisis pay, this is huge for you.
- Police & Fire: Special details, holidays, and emergency response shifts often pay double time, which maximizes this benefit.
- Trades & Construction: Electricians and lineworkers chasing storms or working seasonal crunch times will see a major difference in their refund.
- Trucking & Logistics: If you are paid hourly and consistently running over 40 hours, you are the target audience for this No Tax on Overtime Calculator.
❌ Who is Left Out?
- Salaried Managers: If you make $80k a year regardless of how many hours you work, this deduction doesn't apply to you.
- 1099 Contractors: This one is tricky. Gig workers (DoorDash, Uber) are business owners, not employees. You don't get "overtime" legally, so you can't claim this deduction. (Check our 1099 Tax Calculator instead).
Real-Life Scenarios
Percentages are confusing. Let's look at real people to see how this plays out across different states.
👩⚕️ Sarah the Nurse (Texas)
Situation: Lives in Houston (No State Tax).
Pay: $50/hr Base. Works 10 hours OT/week.
Here's what that means for you: Sarah is in the perfect spot. Texas has no income tax, so she keeps 100% of the federal savings. Nothing gets clawed back.
Rough savings: ~$2,750 / year
⚡ Mike the Electrician (California)
Situation: Lives in LA (High State Tax).
Pay: $40/hr Base. Works 15 hours OT/week.
Here's what that means for you: Mike saves money on his federal return, but California likely won't play along. He will still owe about 9.3% state tax on that "tax-free" money.
Rough savings: ~$1,200 / year
🚛 John the Trucker (Ohio)
Situation: Lives in Ohio (State follows Feds).
Pay: $30/hr Base. Works 20 hours OT/week.
Here's what that means for you: Ohio usually does whatever the IRS does. So John gets a tax cut from Uncle Sam and the state of Ohio.
Rough savings: ~$3,100 / year
The State Tax Trap (Read This!)
Your address matters just as much as your hourly rate. The federal government can cut federal taxes, but they can't force states to follow suit. So states usually fall into three groups:
1. The "Follower" States (Best)
States like Colorado and Michigan have laws that say "we do whatever the IRS does." If the IRS says overtime is tax-free, these states automatically agree. You get double the savings without doing anything extra.
2. The "Stubborn" States (Worst)
States like California and New York often "decouple" from federal rules. They might say, "Cool, you don't owe federal tax, but you still owe us." Unless they pass a specific new law, you won't see state-level savings here.
3. The "Tax-Free" States (Easy)
Florida, Texas, Tennessee, etc. Since there is no state income tax on wages to begin with, you get the full federal benefit immediately.
How to Protect Your Refund
Just because you qualify doesn't mean the money automatically lands in your pocket. There are a few traps to watch out for.
Watch the Income Cap
The current drafts of the bill suggest a "phaseout" for high earners (likely around $150k for singles). If your intense overtime pushes you over that limit, you might start losing the deduction.
What to do: Lower your taxable income on paper. Putting more money into a Traditional 401(k) reduces your "official" salary, which might be enough to keep you under the limit and save your overtime tax break.
Get Your Money Now (Don't Wait)
Most people wait until April 2027 to get this money as a refund. That means you are giving the government an interest-free loan all year.
What to do: Adjust your W-4 form in January. If you know you'll save $3,000 in taxes, change your withholding so you get that extra ~$250 in your paycheck every month instead of waiting for a check next spring.
Why Trust This Calculator?
We know tax tools can be complicated. We built this tool because too many workers were guessing their savings using rough estimates. This calculator separates base pay and premium pay the same way payroll systems do, so you can see real numbers instead of hype.
- Payroll-Grade Math: We didn't just guess. We built this using the exact formula professional payroll software uses.
- State-Specific Logic: Most calculators ignore state taxes. Ours checks your specific state's laws to see if you get state savings or just federal.
- Updated for 2026: We track the legislative drafts constantly. When the bill changes, we update the code.
Common Questions
Is my overtime 100% tax-free now?
Is this law officially passed?
Does this hurt my Social Security?
What about bonuses and commissions?
I work two jobs. Does that matter?
We are data nerds, not CPAs. This No Tax on Overtime Calculator is based on the 2026 legislative drafts and IRS definitions. Tax laws change fast, so always double-check with a professional before making big financial decisions.