How to use the no tax on overtime calculator
- Enter your overtime. Pick Hours and rate, Overtime pay or W-2 code TT, whichever you know, and fill in the boxes.
- Enter your tax return details. Choose your filing status and type your income for the year, the adjusted gross income on Form 1040 including the overtime.
- Read your savings. The calculator works through Schedule 1-A line by line, shows the federal tax you save and how much more each paycheck brings if you update Form W-4.
What is the no tax on overtime calculator?
The no tax on overtime calculator is a tool that works out the new federal deduction for overtime pay and the income tax it saves you. The law behind it, section 225 of the Internal Revenue Code, lets workers deduct qualified overtime of up to $12,500 a year, or $25,000 on a joint return, for tax years 2025 to 2028.
"No tax on overtime" does not mean overtime pay is tax free. Only the premium part of overtime counts, the deduction is taken on the tax return, and Social Security and Medicare are still taken from every hour. Someone paid $25 an hour who works 5 hours of overtime every week has $3,250 of qualified overtime in a year and saves $390 of federal income tax as a single filer.
Features
- Three ways in: hours and hourly rate, total overtime pay, or the code TT amount on Form W-2
- Only the federal overtime premium is counted, including when you are paid double time
- The $12,500 and $25,000 limits and the income phase-out, line by line as on Schedule 1-A
- Federal tax savings from the 2026 rate tables and standard deduction, not a flat guess at your tax rate
- The extra take-home pay in each paycheck when you enter the deduction on Form W-4
- The Social Security and Medicare that still come out of overtime pay
- A PDF report of your inputs, the working and the result, to save or share on WhatsApp
What counts as qualified overtime
The law defines qualified overtime compensation as overtime pay required by section 7 of the Fair Labor Standards Act that is more than the employee's regular rate. In plain terms, it is the "half" in time and a half for hours over 40 in a workweek.
- Time and a half: for each overtime hour, half the regular rate counts. At $25 an hour that is $12.50 of the $37.50 paid.
- Double time: only the federal minimum counts. The IRS example is $20 an hour with 10 overtime hours paid at double time, $400 in all; only the $100 premium the federal law requires is qualified overtime.
- State or contract overtime: daily overtime under a state law, such as California's, and overtime paid only because of a union contract or company policy are not qualified overtime.
- Exempt employees: people the federal overtime law does not cover, such as salaried executive, administrative and professional employees and outside salespeople, have no qualified overtime, even if their employer pays them overtime.
- Owners: an owner with at least 20% of the business who actively manages it is generally exempt.
Each workweek is a fixed 168-hour period, and hours cannot be averaged across weeks. The regular rate is all pay for the week divided by the hours worked, so a shift differential or a production bonus can raise it.
The limit and the income phase-out
The deduction is the smaller of your qualified overtime and $12,500 ($25,000 if married filing jointly). At $25 an hour, you reach the single limit after 1,000 overtime hours in a year.
Above a modified adjusted gross income of $150,000 ($300,000 joint), the deduction drops by $100 for each full $1,000 of income over the line. Schedule 1-A rounds down, so $1,500 over counts as one step. A full single deduction is gone at $275,000, and a full joint deduction at $550,000.
| Income for the year (single) | Deduction left from the full $12,500 |
|---|---|
| $150,000 | $12,500 |
| $160,000 | $11,500 |
| $175,000 | $10,000 |
| $200,000 | $7,500 |
| $250,000 | $2,500 |
| $275,000 | $0 |
Modified adjusted gross income is the adjusted gross income on Form 1040 plus a few foreign and territory exclusions. For most workers it is simply their adjusted gross income.
How much the overtime deduction saves in 2026
Each row is a single filer paid every two weeks who works the same overtime in all 52 weeks at time and a half, with the $16,100 standard deduction and no other income. Savings are federal income tax only.
| Hourly rate | Overtime hours a week | Income for the year | Qualified overtime | Deduction | Federal tax saved | More per paycheck |
|---|---|---|---|---|---|---|
| $18.00 | 5 | $44,460 | $2,340 | $2,340 | $281 | $10.80 |
| $20.00 | 5 | $49,400 | $2,600 | $2,600 | $312 | $12.00 |
| $25.00 | 5 | $61,750 | $3,250 | $3,250 | $390 | $15.00 |
| $25.00 | 10 | $71,500 | $6,500 | $6,500 | $1,280 | $49.23 |
| $30.00 | 10 | $85,800 | $7,800 | $7,800 | $1,716 | $66.00 |
| $40.00 | 10 | $114,400 | $10,400 | $10,400 | $2,288 | $88.00 |
| $50.00 | 10 | $143,000 | $13,000 | $12,500 | $3,000 | $115.38 |
The deduction is worth your top tax rate times the amount deducted, so a worker in the 12% bracket saves 12 cents per dollar and one in the 22% bracket saves 22 cents. A married couple filing jointly with one earner at $30 an hour and 10 overtime hours a week saves $936, less than a single filer with the same pay, because the joint brackets put that income in the 12% bracket.
How to get the savings in your paycheck
Employers keep withholding federal income tax from overtime as ordinary wages. They may not lower it for the deduction on their own. The IRS says an employee who wants the benefit during the year gives the employer an updated Form W-4.
- Work out the deduction you expect for the year with this calculator.
- On the 2026 Form W-4, fill in the Step 4(b) Deductions Worksheet. Line 1b is qualified overtime compensation, for total income under $150,000 ($300,000 joint).
- Carry the worksheet total to Step 4(b) and give the form to your employer.
In the $25-an-hour example, Step 4(b) with $3,250 takes $15.00 off the federal tax withheld from each paycheck every two weeks. If you skip the new W-4, you get the same savings as a larger refund or a smaller balance due. Our guide on how overtime is taxed covers withholding on overtime paychecks as well as the deduction.
Social Security, Medicare and state tax
The deduction lowers federal income tax only. IRS Publication 15 says overtime compensation is subject to Social Security, Medicare and federal unemployment tax, and to income tax withholding. So 7.65% of all overtime pay still goes to Social Security and Medicare: $745.88 a year on the $9,750 of overtime pay in the $25-an-hour example.
State income tax is separate. Each state decides whether to allow the same deduction, so the state tax on your overtime may not change. The paycheck calculator shows the state tax on your pay.
Claiming the deduction on your tax return
- Form W-2: from 2026 your employer reports the full qualified overtime in box 12 with code TT, even when it is more than the limit. You can deduct only amounts shown on a W-2 (or on a corrected W-2c). A Form 4852 substitute does not qualify.
- Schedule 1-A (Form 1040): Part I works out modified adjusted gross income; Part III, lines 14 to 21, applies the limit and the phase-out. The deduction is allowed whether you itemize or take the standard deduction.
- Social Security number: the return must include a Social Security number valid for work, issued before the due date of the return. On a joint return, the number of each spouse with overtime must be on it.
- Married couples: must file a joint return. Married filing separately gets no deduction.
- Years: tax years 2025 through 2028. The law says no deduction is allowed for tax years beginning after 31 December 2028.
If the code TT amount on your W-2 is wrong, ask your employer for a Form W-2c. Without a correction, the IRS limits the deduction to the smaller of the amount reported and the amount actually paid.
What the calculator includes
- Tax year: 2026 limits, phase-out, standard deduction and rate tables. The limit and phase-out are the same for 2025 to 2028; the rate tables change each year.
- Qualified overtime: half the regular rate for each hour over 40 a week, the share of overtime pay at the multiplier you enter, or the W-2 code TT amount.
- Savings: federal income tax with and without the deduction, after the standard deduction and any other deductions you enter. Credits, such as the child tax credit, are not included and can lower the real savings.
- Limits: hourly rates up to $10,000, up to 128 overtime hours a week, multipliers from 1.5 to 5.
- Not included: state income tax, the separate tips deduction, and special overtime rules for hospitals, firefighters and police, which use the overtime premium actually paid.
Is it private?
Yes. The calculation runs in your browser. Your pay, your income and your result are not sent to a server and are not saved.
Tips for an accurate estimate
- Use the hours over 40 in each workweek, not daily overtime. Only federal overtime counts.
- If you are paid double time, still enter your regular rate: only half of it per overtime hour counts.
- Check box 12 of your 2026 Form W-2 for code TT. That is the number your return uses.
- Put the expected deduction on line 1b of the Form W-4 Step 4(b) worksheet to get the savings in each paycheck.
- Married? File jointly. Married filing separately cannot take this deduction.
Related calculators
Frequently asked questions
- Is overtime pay really tax free?
- No. Overtime is still wages: federal income tax is withheld from it, and Social Security and Medicare apply. The new rule is a deduction on the tax return of up to $12,500 ($25,000 joint) for the premium part of overtime, which lowers federal income tax.
- How much of my overtime is deductible?
- Only the part above your regular rate that federal law requires. At time and a half, that is one third of the overtime pay. At double time, it is still only the half-rate premium the federal law requires.
- Does California daily overtime count?
- No. Only overtime required by the federal Fair Labor Standards Act, for hours over 40 in a workweek, is qualified overtime. Daily overtime under a state law and overtime paid under a contract do not count, unless the same hours are also over 40 in the week.
- What if I earn more than $150,000?
- The deduction drops by $100 for each full $1,000 of modified adjusted gross income over $150,000 ($300,000 joint). A full $12,500 single deduction is gone at $275,000.
- Can I get the savings in my paycheck now?
- Yes. Give your employer a new Form W-4 with the expected deduction on line 1b of the Step 4(b) Deductions Worksheet. Your employer cannot lower withholding for it without the new form.
- Can married couples filing separately claim it?
- No. A married taxpayer must file a joint return to claim the overtime deduction, and the return must include a valid Social Security number.
- Where do I find my qualified overtime?
- From tax year 2026, in box 12 of Form W-2 with code TT. For 2025 employers did not have to report it separately, so you may have to work it out from your pay stubs.
Sources
Every rate, bracket and limit this calculator uses comes from the official sources below. The method is shown on this page, so any result can be checked by hand.
- U.S. Code (Office of the Law Revision Counsel), 26 U.S.C. 225, Qualified overtime compensation. The deduction, the $12,500 and $25,000 limits, the $100 per $1,000 phase-out, the joint return and Social Security number rules, and the 2028 end date.
- Internal Revenue Service, FS-2026-13, Questions and answers about the deduction for qualified overtime compensation (August 2026). What counts as qualified overtime, double time, exempt employees, Form W-2 code TT, Form W-4 and the federal employee rules.
- Internal Revenue Service, Schedule 1-A (Form 1040), Additional Deductions, Part III, No Tax on Overtime. Lines 14 to 21: the limit, the modified adjusted gross income phase-out and the rounding of each $1,000 step.
- Internal Revenue Service, Publication 15 (2026), (Circular E), Employer's Tax Guide. Overtime stays subject to withholding, Social Security and Medicare; the qualified overtime deduction of up to $12,500 ($25,000 on a joint return).
- Internal Revenue Service, Form W-4 (2026), Employee's Withholding Certificate. The steps of the form and the Step 3 amounts: $2,200 for each qualifying child under 17 and $500 for each other dependent.
- Internal Revenue Service, Publication 15-T (2026), Federal Income Tax Withholding Methods. Worksheet 1A and the 2026 Percentage Method Tables for Automated Payroll Systems: every bracket, rate and the $12,900 and $8,600 amounts on line 1g.
- Internal Revenue Service, Revenue Procedure 2025-32 and IR-2025-103, tax inflation adjustments for tax year 2026. The 2026 standard deduction and income tax rate tables for single, married filing jointly and head of household filers.
- Internal Revenue Service, Topic no. 751, Social Security and Medicare withholding rates. Social Security 6.2%, Medicare 1.45%, and Additional Medicare Tax of 0.9% on wages above $200,000 in a calendar year.