Overtime tax calculator 2026
The law people call no tax on overtime is a deduction, and it is worth less than the name suggests. It covers the premium half of time and a half, caps at $12,500, and leaves Social Security and Medicare exactly where they were. This works out what it is actually worth to you.
The overtime deduction saves you
$734
You can deduct $5,200 of overtime premium from federal taxable income, which is worth $734 a year at your rate. Take-home goes from $56,387 to $57,121.
- Gross pay
- $67,600
- Overtime premium
- $5,200
- Deductible
- $5,200
- Federal tax saved
- $734
Where the money actually goes
| Regular pay, 40 hours a weekTaxed normally | $52,000 |
| Overtime pay at time and a halfAll of it is taxable income and all of it pays FICA | $15,600 |
| Of which, the premium halfThe only part section 225 lets you deduct | $5,200 |
| Federal income tax$6,042 without the deduction | −$5,308 |
| Social Security and MedicareUnchanged: overtime pays FICA in full | −$5,171 |
| Texas taxNo state income tax on wages | -$0 |
| Take-home | $57,121 |
Per paycheck that is about $2,196.95 bi-weekly. Your employer still withholds tax on overtime through the year, so for most people the deduction arrives as a larger refund rather than a bigger cheque.
What the law actually says
The One Big Beautiful Bill Act added section 225 to the tax code. It allows a deduction for qualified overtime compensation, which the statute defines as overtime required by section 7 of the Fair Labor Standards Act that is in excess of the regular rate. Those last five words do most of the work. On time and a half, the part in excess of your regular rate is the half, so a $15,600 overtime year produces a $5,200 deduction.
The deduction is capped at $12,500, or $25,000 on a joint return. Above $150,000 of income it falls by $100 for every whole $1,000, so it runs out entirely for higher earners. You can claim it whether or not you itemise, and it ends after the 2028 tax year.
Two things it does not do. It does not reduce Social Security or Medicare, which still apply to every dollar of overtime. It does not change your state tax by itself, because states decide separately whether to follow a federal deduction.
Frequently asked questions
Is overtime really tax free now?
No, and the name causes more confusion than anything else in the law. Overtime is still taxable income. What the One Big Beautiful Bill Act created is a deduction, and it covers only the premium part of your overtime, the extra half in time and a half. On $25 an hour with 8 overtime hours a week, the overtime itself is $15,600 but the deductible premium is $5,200.
How much is the overtime deduction worth?
It reduces your taxable income, so it is worth your tax rate multiplied by the deduction, not the deduction itself. The example above deducts $5,200 and saves $734 in federal tax. The maximum deduction is $12,500 for a single filer and $25,000 on a joint return.
Does the overtime deduction reduce Social Security and Medicare?
No. Overtime pay is subject to Social Security and Medicare in full, before and after this deduction. Only federal income tax is affected, which is why the saving is smaller than people expect from the phrase no tax on overtime.
Who cannot claim it?
Two groups. Anyone whose overtime is not required by the Fair Labor Standards Act, since the law covers FLSA overtime rather than any payment an employer chooses to call overtime, and high earners. The deduction falls by $100 for every $1,000 of income above $150,000, or $300,000 on a joint return, and reaches nothing well before $275,000.
Will I see it in my paycheck or my refund?
Most people will see it as a larger refund. Your employer withholds tax on overtime through the year in the normal way, and the deduction is claimed on your return, so the money comes back after you file rather than arriving in each cheque.
How long does it last?
Tax years 2025 through 2028. The statute says plainly that no deduction is allowed for any tax year beginning after 31 December 2028, so unless Congress extends it the 2028 return is the last one that can use it.
Does my state give the same break?
This is a federal deduction and it does not automatically change your state tax. A state that starts from your federal taxable income may follow it; a state that uses its own definition of income may not. This calculator leaves state tax alone, which is the safer assumption.
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Federal tables checked against the IRS 2026 inflation adjustments on . State figures, where quoted, are each state's latest published schedule, 2025; federal figures are 2026.