No Tax on Overtime Calculator — OBBBA Deduction 2026

The overtime deduction lets you subtract qualified overtime premium pay from taxable income — up to $12,500 on a single return or $25,000 on a joint one — for tax years 2025 through 2028. Like the tips deduction it is available without itemizing, and like the tips deduction its popular name oversells it. What you deduct is not your overtime paycheck. It is only the premium: the part of the payment that exceeds your regular hourly rate.

On time-and-a-half, that premium is the half. An hour of overtime at a $30 regular rate pays $45, of which $30 is ordinary wages that were always taxable and $15 is the qualified premium. Four hundred overtime hours a year at that rate produce $18,000 of gross overtime pay but only $6,000 of deduction. This is the single most common error in overtime deduction estimates, and it produces figures three times too large.

Only overtime required by section 7 of the Fair Labor Standards Act qualifies, which is the federal rule requiring premium pay past forty hours in a workweek. Premiums that go beyond that federal floor do not count, even though your pay stub lumps them together: California's daily overtime past eight hours in a day, Alaska's and Nevada's equivalents, contractual double time, weekend and holiday premiums, and shift differentials are all outside the deduction. A California worker who logs daily overtime without passing forty hours in the week has qualified overtime of zero.

FICA applies to the whole overtime payment, premium included, so your withholding will barely move. The cap phases down above $150,000 of modified adjusted gross income ($300,000 joint) at $100 per $1,000, reaching zero at $275,000 for single filers and $550,000 for joint filers. Your employer reports qualified overtime separately on your W-2, and for 2025 the IRS accepted a reasonable method of estimating it where payroll systems had not yet been updated.