No Tax on Overtime — the deduction explained
The One Big Beautiful Bill Act created a federal income-tax deduction for the premium “half” of your time-and-a-half. Here’s who qualifies, how much it’s worth, and a quick estimate of your own deduction.
Quick deduction estimate
Enter your regular hourly rate and your overtime hours for a typical week.
A deduction lowers your taxable income — it isn’t a refund check, and your actual benefit depends on your tax bracket and total income. Estimate only.
The headline
For tax years 2025 through 2028, eligible workers can deduct the premium portion of FLSA overtime — the extra “half” in time-and-a-half — from their federal taxable income, up to $12,500 (single) or $25,000 (joint).
What actually qualifies
Only the premium half counts, not your entire overtime check. Say you earn $20/hour and get $30/hour for overtime. The deductible amount is the $10 premium per overtime hour — not the full $30. This is the part the FLSA requires on top of your regular rate.
- Eligible: FLSA-covered, non-exempt employees who receive qualifying overtime.
- Reported: the overtime must appear on a W-2, 1099, or similar statement. Beginning with 2026, employers report it in W-2 Box 12 with code “TT.”
- Identity: you need a valid Social Security number, and married filers must file jointly to claim it.
- Both filer types: available whether you itemize or take the standard deduction, claimed on Schedule 1-A.
The caps and phase-out
The maximum deduction is $12,500 for single filers and $25,000 for joint filers each year. It begins to phase out once modified adjusted gross income exceeds $150,000 ($300,000 for couples), shrinking as income rises above that line.
What it is not
This is a deduction that reduces taxable income — it is not a cash bonus, and it does not erase Social Security or Medicare taxes on overtime. Critically, only overtime required by the federal FLSA qualifies. If you earn overtime purely from a state daily-overtime rule or a union contract that goes beyond the federal requirement, that extra portion may not count. Check your state’s overtime rules to see which part of your pay is federally required.
A worked example
You earn $25/hour and work 8 overtime hours every week. Your FLSA premium is half of $25, or $12.50, per overtime hour — about $100 a week. Over 52 weeks that’s roughly $5,200 of qualified overtime premium, comfortably under the $12,500 single-filer cap, so the full amount could be deductible. Use the estimator above with your own numbers, then confirm the exact figure with a tax professional.
How to claim it
When you file your federal return, the qualified overtime amount flows onto Schedule 1-A (Form 1040). Your employer’s reporting (the W-2 code, or a 1099 figure) tells the IRS how much qualifying overtime you received. If your employer hasn’t separated overtime out, ask your payroll department — and keep your own records with the weekly time card.
No Tax on Overtime FAQ
Is overtime really tax-free now?
Do salaried exempt employees qualify?
Will I get the money back as a refund?
This is general tax education, not tax advice, and figures can change as the IRS issues guidance. Verify details with the IRS and a qualified tax professional before filing.