No tax on overtime: what it actually saves you.
The new deduction doesn't make overtime tax-free. It takes the extra half of time-and-a-half off your taxable income. Here's what that's worth.
How the deduction works
Say you earn $25 an hour and work 48 hours a week. The 8 overtime hours pay $37.50 each. $25 of that is your regular rate; the other $12.50 is the premium. Only the premium is deductible. Over a year of 50 weeks that's $5,000 off your taxable income.
For a single filer earning about $67,000 in 2026, that saves roughly $650 in federal income tax. It doesn't touch Social Security or Medicare, which are still 7.65% of all your pay.
Get it in your paycheck, not just your refund
Payroll still withholds tax on overtime as normal. If you'd rather see the money during the year, fill out a new W-4 and enter your expected deduction in the Step 4(b) deductions worksheet. Your employer will withhold a little less from each check.
Just want to know what your overtime pays? Use the overtime calculator. For your full take-home, try the paycheck calculator.
Questions
Is overtime really tax-free now?
Not all of it. From 2025 to 2028 you can deduct the premium part of overtime the Fair Labor Standards Act requires — the extra half in time-and-a-half — up to $12,500 a year ($25,000 filing jointly). Your regular rate for those hours is still taxed, and Social Security and Medicare still come out.
How do I calculate the qualified overtime?
Take your regular hourly rate, halve it, and multiply by your FLSA overtime hours (hours over 40 in a workweek). At $25 an hour, 8 overtime hours a week for 50 weeks: $12.50 × 400 = $5,000.
What if I'm paid double time?
Only the part the FLSA requires counts, which is the half-time premium. A double-time hour still only qualifies for 0.5 × your regular rate. The same goes for overtime that only your state law or union contract requires.
Who can't claim it?
Workers exempt from FLSA overtime (many salaried employees), married couples filing separately, and anyone without a valid Social Security number. Above the income limit the deduction shrinks and eventually disappears.
How does the income limit work?
If your modified adjusted gross income is over $150,000 ($300,000 filing jointly), the deduction drops by $100 for every full $1,000 over. The calculator does this for you.
How much will my refund be?
Roughly your deduction times your top tax bracket. If your employer withheld as usual during the year, that saving shows up as a bigger refund when you file. To get it in each paycheck instead, add the deduction to your W-4.
Do I need to itemize?
No. It's a new deduction on Schedule 1-A that works with the standard deduction too.
Where does the overtime amount come from?
Your employer reports qualified overtime separately on your W-2. For the first year it may be reported on a separate statement or estimated from your pay stubs, so keep them.