No Tax on Overtime Calculator 2026: Estimate Your Savings

How the No Tax on Overtime Deduction Works

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 temporary federal income tax deduction, codified at IRC §225, for “qualified overtime compensation.” It applies to tax years 2025 through 2028 and, unless Congress extends it, expires after that.

It is a deduction, not an exemption. Overtime pay is still reported as wages, and every dollar of it is still subject to payroll withholding throughout the year. The benefit shows up when you file: you subtract your qualified overtime, up to the cap, from your taxable income. You can claim it whether you itemize or take the standard deduction.

Treasury reported in a July 2, 2026 release that more than 29 million taxpayers claimed the deduction for tax year 2025 through the April 15 filing deadline, with an average deduction above $3,100. At a 22% bracket, a $3,100 deduction is worth about $682 in federal tax, which is why this calculator reports savings as well as the deduction itself.

How Much Overtime Can You Deduct in 2026?

The qualifying amount is your FLSA overtime premium: 0.5 × your regular hourly rate × qualifying overtime hours. That amount is capped by filing status and, for higher earners, reduced by the phase-out described below. Whatever is left is your allowable deduction.

The deduction is worth your allowable amount multiplied by your marginal federal tax rate, not the deduction itself. A $4,400 deduction at a 12% bracket saves $528, and at 22% it saves $968.

How the No Tax on Overtime Phase-Out Works

Once MAGI exceeds the threshold, the deduction is reduced by $100 for every $1,000 of MAGI above it. It is 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 qualified overtime was at least that much.

The Schedule 1-A worksheet drops any partial $1,000. At $150,999 of MAGI the reduction is $0, and at $151,000 it is $100. The reduction is applied after the cap, so a filer with only $3,000 of qualified overtime and a $5,000 reduction ends up with no deduction.

Most hourly overtime workers earn well under $150,000, so the phase-out never applies to them. It mainly affects households with significant other income.

Who Qualifies for the No Tax on Overtime Deduction?

You generally qualify if you are a non-exempt employee who is paid overtime required by the FLSA, you have a Social Security number that is valid for employment, and you file as single, head of household, or married filing jointly. The following people generally cannot claim it:

• Married Filing Separately filers. They are excluded entirely by statute, at any income level.
• Salaried, FLSA-exempt employees. The deduction only covers overtime required under the FLSA. If you don’t legally qualify for FLSA overtime, you have no qualified overtime compensation to deduct.
• Workers whose overtime is required only by state law or a union contract. Only the federally required portion counts, even if your state or contract requires a richer overtime rate.
• Independent contractors and the self-employed. The deduction is built around FLSA employees. The IRS notes a narrow exception for workers who are employees under the FLSA but are treated as contractors for tax purposes.
• Very low earners with no federal income tax. The deduction reduces taxable income, so it has no value if you don’t owe federal income tax in the first place.

What Counts as Qualified Overtime?

Qualified overtime compensation is overtime pay required under section 7 of the FLSA that exceeds your regular rate. For a worker paid time and a half, that is the extra half. Your regular rate is not always your base wage. Under the FLSA it can include shift differentials and non-discretionary bonuses, so if your pay stub shows a higher blended rate, use that figure in the calculator.

These do not count: hours over 8 in a day that are required only by state law, overtime required only by a collective bargaining agreement, voluntary premiums your employer chooses to pay, and the part of double time or holiday pay above the half-time premium.

Some occupations follow special FLSA overtime rules. Police and fire employees can fall under a partial exemption with higher overtime thresholds, and some drivers are exempt from FLSA overtime under the Motor Carrier Act. If your job is in one of these groups, only the hours the FLSA actually requires at overtime rates count. Your W-2 Box 12, code TT amount already reflects your employer’s determination.

What Is W-2 Box 12 Code TT?

Code TT is the W-2 code employers use, starting with tax year 2026, to report your total qualified overtime compensation. It sits in Box 12 of Form W-2, and the first forms carrying it are the 2026 W-2s furnished in early 2027. The amount is already included in your Box 1 wages. The code identifies how much of it may be deductible.

The figure is the FLSA premium only. For someone with a $20 base rate paid $30 for overtime, code TT reports $10 per overtime hour, not $30. Employers report the full amount even if it is more than you can deduct. The IRS gives the example of an employer that paid $30,000 of qualified overtime: the W-2 shows $30,000, even though the most a single filer can deduct is $12,500 and a joint filer $25,000.

For tax years after 2025, the code TT amount is effectively your ceiling. The IRS guidance says employees generally cannot use their own records if the employer leaves the amount off or understates it. In that case you need a corrected Form W-2c. In rare cases where a worker is an employee under the FLSA but treated as a contractor for tax purposes, the payer reports the amount on Form 1099-NEC (box 1d) or Form 1099-MISC (box 14) instead.

How to Claim the No Tax on Overtime Deduction on Schedule 1-A

You claim the qualified overtime deduction on Schedule 1-A, filed with your Form 1040. For tax year 2025, the IRS gave employers transition relief and did not require them to report qualified overtime separately, so many workers estimated the amount from pay stubs or a year-end payroll statement under IRS Notice 2025-69.

For tax year 2026 and later, employers must report it separately. On a 2026 return, your W-2 Box 12, code TT amount is the starting point, and it is the number to enter in the W-2 mode of the calculator above. If you think your employer omitted or understated it, ask for a corrected Form W-2c instead of assuming an amount.

What Still Gets Taxed

The straight-time portion of your overtime hours 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 on your state’s law. Most states start from federal adjusted gross income (AGI), a figure calculated above where this deduction applies on the federal return. So the deduction does not flow through automatically. A state has to adopt it, or its own version of it, before residents get the benefit.

The picture is uneven and still changing. PBS News reported in April 2026 that Idaho, Iowa, Montana, North Dakota, and Oregon allow the overtime deduction on state returns, that Colorado opted out of it for overtime, and that Arizona listed it on state forms under a governor’s executive order. Other states have created smaller deductions of their own, and many did not conform.

Because this changes with each legislative session, the calculator does not guess for you. State savings appear only if your state taxes wages and you confirm that it allows the deduction, and the figure is an illustration (allowable deduction × the rate you enter), not a state tax calculation. Check your state revenue department before relying on it.

Worked Examples

Estimate from pay. 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. The premium is under the cap, so nothing is lost to it.
• 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 on the $4,400 premium (7.65%): $336.60, unaffected by this deduction

Enter the W-2 amount. A married couple filing jointly has $31,000 of combined Box 12, code TT amounts, MAGI $120,000, and a 22% bracket:

• Qualified overtime from the W-2s: $31,000
• Deduction cap (joint): $25,000, so $6,000 is not deductible
• MAGI is under $300,000, so no phase-out reduction applies.
• Allowable federal deduction: $25,000
• Estimated federal tax savings at 22%: $25,000 × 22% = $5,500

Frequently Asked Questions: No Tax on Overtime Calculator

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