No Tax on Overtime Calculator

How the no tax on overtime deduction works

The name promises more than the law gives. You don’t stop paying tax on overtime. You deduct part of it from your taxable income, and the part you can deduct is smaller than most people expect.

1. Only the “half” counts. The IRS allows only the part of overtime above your regular rate. At time and a half, that’s a third of your overtime pay.
2. There’s a yearly limit. You can deduct up to $12,500, or $25,000 on a joint return.
3. High incomes get less. Above $150,000 of modified adjusted gross income ($300,000 if joint), the deduction drops by $100 for each full $1,000 over.
4. It saves your tax rate, not the whole amount. A $3,125 deduction in the 12% bracket saves $375, not $3,125.

What the deduction saves at different overtime levels

Single filer, full time at 2,080 regular hours plus the overtime, paid at time and a half, standard deduction, 2026 brackets. The last row hits the $12,500 limit: $4,375 of its qualified overtime can’t be deducted.

Who qualifies

You need overtime that the federal Fair Labor Standards Act (FLSA) requires, which generally means pay for hours over 40 in a workweek. You also need a Social Security number valid for work. If you’re married, you must file jointly. You can’t claim it if:

• You’re exempt from FLSA overtime, as many salaried managers, professionals and outside sales staff are. Being paid overtime anyway doesn’t change that.
• Your overtime comes only from a state law or union contract, such as pay for hours over 8 in a day, over 35 in a week, or on weekends. Only the amount the FLSA requires counts.
• You’re an independent contractor. FLSA overtime is for employees. The IRS says 1099 reporting of qualified overtime is rare.
• You own at least 20% of the business and help run it. The IRS generally treats you as an exempt executive.

Salaried isn’t the test. A salaried worker who is entitled to FLSA overtime can qualify.

Where to find your number

From 2026, your employer must report your qualified overtime on Form W-2, in box 12 with code TT. That figure matters more than your own math. The IRS says you can deduct only what’s reported there.

• If the W-2 amount is too low or missing, ask your employer for a corrected Form W-2c. A substitute Form 4852 won’t work.
• If the W-2 amount is too high, you can use only what you were actually paid.
• If it’s over $12,500, that’s not a mistake. Employers report the full amount, and Schedule 1-A applies the limit.

Two ways to get the money

When you file. You claim the deduction on Schedule 1-A with your Form 1040. Many people will see it as a bigger refund or a smaller bill.

In your paycheck now. A new Form W-4 can lower your withholding, because Step 4(b) of the 2026 form has a line for it. Estimate conservatively: if your overtime falls short, you could owe at tax time. See what any change does to your pay with the paycheck calculator.

How the income limit reduces the deduction

Single or head of household with at least $12,500 of qualified overtime. A part-thousand doesn’t count, so $150,900 loses nothing. On a joint return with $25,000 of qualified overtime, the deduction reaches zero at $550,000.

What about state taxes?

This calculator covers federal income tax only, and states set their own rules. Your state may still tax all of your overtime. Three examples of how differently they handle it:

• Iowa follows the federal rule.
• Alabama has its own deduction, up to $1,000 per taxpayer, for 2026 through 2028.
• Georgia doesn’t follow the federal rule. It has a smaller exemption of its own, up to $1,750.

Nine states don’t tax wages at all. Check with your state’s tax agency, and see your full picture in your state’s paycheck calculator.