No Tax on Overtime Calculator: Estimate Your Federal Deduction

Section 225 of the Internal Revenue Code, added by Public Law 119-21 (the 2025 reconciliation act), allows a deduction for qualified overtime compensation. The statute sets the limit:

Qualified overtime compensation is only the premium the FLSA requires. In the statute’s words, it is

For the usual case, time and a half for hours over 40 in a workweek, the IRS gives this formula for each workweek:

That is why the calculator multiplies your FLSA overtime hours by your regular rate and then by one half. If you only know your total overtime pay at time and a half, the premium is one third of it, because $1.50 of pay per hour contains $0.50 of premium. At double time the FLSA premium is still the half, which is one fourth of total double-time pay.

The deduction then goes through two limits. First the cap. Then, if your modified AGI is above the threshold, a reduction:

Modified AGI (MAGI) is not a new income number. The IRS describes it this way:

Partial thousands do not count. The IRS form says:

The 2026 early release draft of Schedule 1-A (marked “DRAFT — DO NOT FILE”) keeps the same rule on its line 25, so the rounding is expected to hold for 2026. Check the final form when the IRS publishes it:

So $999 over the threshold costs nothing, and $1,000 over costs $100. The statute itself says “for each $1,000” and does not say “or portion thereof”, which is consistent with the form.

Worked examples

• Under the limits. A single filer works 200 FLSA overtime hours in 2026 at a regular rate of $30. Total overtime pay at time and a half is 200 × $30 × 1.5 = $9,000. The premium is 200 × $30 × ½ = $3,000, the same as $9,000 ÷ 3. Modified AGI is $75,000, below $150,000, so the deduction is $3,000. At a 22% marginal rate that saves about $660.
• Cap and phase-out together. A single filer received $42,000 of overtime pay at time and a half, so the premium is $14,000. The cap cuts it to $12,500. Modified AGI of $160,500 is $10,500 over $150,000, which is 10 whole thousands, so the reduction is 10 × $100 = $1,000. The deduction is $11,500, saving about $2,760 at 24%.
• Joint return. A couple has $60,000 of overtime pay at time and a half, a $20,000 premium, under the $25,000 joint cap. Modified AGI of $320,000 is $20,000 over $300,000, so the reduction is 20 × $100 = $2,000 and the deduction is $18,000.
• Double time. The IRS example: an employee earning $20 an hour works 50 hours in a week and the employer pays 2× for the 10 overtime hours, $400. Only $100 is qualified, the $10-an-hour half-time premium the FLSA requires on 10 hours.

These results are estimates of the deduction and of the tax it saves, not of your refund. The calculator does not know your other credits, bracket edges, or the amount your employer reported.

You can claim the deduction if all of these are true:

• You are an FLSA overtime-eligible employee: covered by the FLSA and not exempt from its overtime rule. Executive, administrative and professional employees, outside sales employees and certain computer-related employees are common exemptions. An employee who owns at least a bona fide 20-percent equity interest and actively manages the business is generally exempt.
• The overtime was paid to you and reported where the IRS requires, as explained in the claiming section below.
• You have a Social Security number valid for employment. The statute requires it on the return:

The IRS adds what counts as valid:

• You file as single, head of household or married filing jointly. For married people the statute says:

Married filing separately is therefore not allowed. On a joint return the $25,000 cap is shared by both spouses, and each spouse who earned qualified overtime needs a valid Social Security number.

These amounts do not count:

• Overtime above the FLSA premium. The IRS notes that when an employer pays more than the FLSA requires,

  “while the additional one-half times portion required by the FLSA may be qualified overtime, payments in excess of the FLSA-required premium are not.”

  “If an employer pays more overtime pay than required by the FLSA (e.g., “double time” pay that is twice the employee’s regular rate of pay), only the amount minimally necessary to satisfy 29 USC § 207 is qualified overtime compensation for purposes of the tax deduction.”

• Overtime that a state or a contract requires but the FLSA does not, such as daily overtime after 8 hours, premiums for hours beyond 35 in a week, or pay under a collective bargaining agreement. The IRS says

  “Overtime compensation not required by the FLSA is not eligible for the deduction.”

  “An individual who is ineligible for overtime under the FLSA (an FLSA overtime-ineligible employee) does not receive qualified overtime compensation regardless of other laws or circumstances (such as a collective bargaining agreement) providing for overtime pay.”

• Weekend and holiday premiums when you did not work more than 40 hours that week:

  “Extra pay for certain weekends or holidays is generally not qualified overtime compensation if the employee doesn’t work more than 40 hours in the workweek.”

• Qualified tips, which section 225(c)(2) excludes from qualified overtime compensation.

Regular rate matters too. The FLSA regular rate includes all remuneration for employment except certain statutory exclusions, so a nondiscretionary bonus raises the rate and the premium. This calculator takes the rate you type in and cannot work it out for you.

The law applies to taxable years beginning after December 31, 2024. It ends with this rule:

In practice that is tax years 2025, 2026, 2027 and 2028. The 2025 deduction is claimed on the return you file in 2026. Nothing in the law extends the deduction past 2028; that would take new legislation.

Your paychecks did not change on the day the law passed. The employer’s withholding does not account for the deduction by default:

The 2026 Form W-4 lets you account for it in step 4(b), and the IRS Tax Withholding Estimator has been updated to include it.

You claim the deduction on Schedule 1-A (Form 1040), Part III, No Tax on Overtime. The total of Schedule 1-A goes on line 13b of the 2025 Form 1040 (line 13a on the 2026 draft form). You can take it whether you itemize or take the standard deduction:

Schedule 1-A starts from your adjusted gross income, and its total goes on line 13b of the 2025 Form 1040, after AGI. The deduction therefore lowers your taxable income and does not lower your AGI. It does not exclude overtime from income:

Social Security and Medicare tax are not reduced either:

This calculator does not estimate state income tax. Whether your state allows a similar deduction depends on your state’s law, and the federal sources cited on this page cover federal income tax only, so check your state revenue agency.

2025 returns

For 2025, employers did not have to report qualified overtime separately. IRS Notice 2025-69 let employees work it out from their pay records:

• If a statement covering the entire 2025 tax year separately shows the FLSA overtime premium (the “half”), use that amount.
• If a statement covering the entire 2025 tax year shows total pay for the overtime hours at time and a half, use one third of it.
• At double time, with a statement covering the entire 2025 tax year, use one half of the separately shown amount above the regular rate, or one fourth of the total pay for the overtime hours.
• If you have no statement, use a reasonable method based on your regular rate and your hours over 40 in a workweek, or ask your employer for the figure. Keep the documents you rely on.

If your employer chose to put a separate amount in box 14 of the 2025 Form W-2, you can generally use it. Those instructions applied to 2025 only.

2026 through 2028

From 2026 the employer must report it on your W-2:

The number in box 12 code TT is what you put on Schedule 1-A; the cap and phase-out are applied afterwards, so the amount reported can be larger than the amount you can deduct. And there is no fallback:

If you believe code TT is too low, ask your employer for a Form W-2c. The IRS says a substitute Form W-2 on Form 4852 cannot be used to make up the difference. If the amount is too high, the IRS says:

So from 2026, start from the qualified overtime in W-2 box 12, code TT (or a corrected W-2c), but never more than you were actually paid. The cap and phase-out then apply.

Workers who are employees for FLSA purposes but are treated as independent contractors for tax purposes get the amount on a 1099 instead, which the IRS calls rare:

About the IRS FAQ used on this page: it is a fact sheet, not a regulation, and it says so itself:

It adds that a taxpayer who reasonably and in good faith relies on the FAQs will not be subject to a penalty that has a reasonable cause standard, to the extent the reliance results in an underpayment of tax.

Also read: the overtime pay calculator for gross pay and the time and a half calculator to split hours at 40.

Federal employees are covered when they are FLSA overtime-eligible, and only for the FLSA premium. The IRS FAQ was coordinated with the Department of Labor and OPM. To find your category:

OPM explains how that splits overtime rules:

• FLSA-nonexempt (N). Your overtime is FLSA overtime under OPM’s rules, and the qualified part is the half-time premium: one half of your hourly regular rate times your overtime hours. IRS says:

  “The one-half portion (paragraph (2) of the above formula) is the qualified overtime compensation used in determining an employee’s qualified overtime compensation deduction.”

  Hours count under OPM’s rules (5 CFR part 551, subpart D); for most employees there is an 8-hour daily threshold as well as a 40-hour weekly one, and that applies only to OPM-covered employees, not to the Postal Service. Some employees have special work periods; for GS-0081 firefighters under 5 U.S.C. 5545b the default is the biweekly pay period with a 106-hour threshold.
• FLSA-exempt (E). You are paid title 5 overtime under 5 U.S.C. 5542, not FLSA overtime. The IRS FAQ names FLSA-exempt employees as FLSA overtime-ineligible, and says they do not receive qualified overtime compensation. The FAQ does not list 5 U.S.C. 5542 by name, but title 5 overtime for exempt employees is not required by section 7 of the FLSA, so it does not qualify.
• Compensatory time (5 U.S.C. 5543). The IRS says:

  “Qualified overtime compensation does not include the value of compensatory hours earned or used by employees during the course of employment with an agency. However, a portion of the payment for the unused 5 USC § 5543 compensatory time off hour—at the end of the 26-pay-period timeframe for using compensatory time off, transfer to a different Federal agency, or separation from Federal service—is qualified overtime compensation.”

• Other premium pay. Night differential and Sunday premium pay are separate from overtime pay in OPM’s premium pay rules, and the IRS counts only overtime the FLSA requires. The weekend and holiday rule quoted above also applies. Check your W-2 code TT for what your agency reported.

For GS overtime rates by grade and step, see the GS pay calculator, which shows both title 5 and FLSA non-exempt overtime.

Postal Service. The Postal Service follows DOL’s FLSA rules, not OPM’s. The IRS says:

USPS employees who are FLSA overtime-eligible can qualify, again only for the FLSA half-time premium. Some postal contracts pay more than time and a half in some cases, for example penalty overtime at 2× or higher rates for very long days. Those extra amounts are not qualified, for the same reason as any double time. Contract daily overtime (over 8 hours a day, for example) counts only to the extent it is FLSA overtime in the workweek; the IRS lists premiums for hours beyond 8 on a workday as a non-FLSA premium. See USPS overtime rules by craft on the USPS pay scale page. Start from your W-2 box 12, code TT.

If you searched for an overtime tax credit, this is the benefit you mean, but the law calls it a deduction and the difference changes the math. A credit subtracts from the tax you owe. A deduction subtracts from the income the tax is figured on, so a $3,000 deduction saves about $660 at a 22% marginal rate, not $3,000.

The statute says an amount “shall be allowed as a deduction.” It is listed with the deductions used to reach taxable income, and it is claimed on Schedule 1-A, not on a credit form. The IRS also says the deduction does not make overtime “excluded or exempt from gross income.” That is why payroll taxes continue, and why the result of this calculator is labelled as an estimate of the federal income tax saved.