What “No Tax on Overtime” Actually Means
The phrase gets thrown around loosely, so it's worth being precise about it. The federal rule behind it — introduced through the One Big Beautiful Bill Act — creates a deduction for a slice of your overtime earnings. It does not erase taxes from your paycheck, and it does not touch Social Security or Medicare withholding. What it does is let eligible workers subtract a defined amount from their taxable income, which can lower the federal tax they owe for the year. Think of this calculator as a planning tool, not a way to remove tax withholding from your paycheck.
Why Only the Premium Counts
Say your regular rate is $20 an hour and time-and-a-half puts your overtime rate at $30. You're still paid the full $30, but only the $10 premium — the amount above your regular rate — counts as qualified overtime compensation. Work 300 overtime hours in a year at that rate, and the qualifying amount comes out to roughly $3,000, not the full $9,000 of overtime wages you actually earned.
- Your full time-and-a-half overtime pay still shows up on your paycheck and is still taxed as normal.
- Only the "extra half" — the premium above your regular hourly rate — is deductible.
- The calculator isolates that premium automatically so you don't have to do the math by hand.
Where the Caps and Phase-Out Come In
Even if your premium adds up to more than the cap, the deduction won't exceed $12,500 on a single return or $25,000 on a joint one. And because the rule is aimed at middle-income earners, it fades out once MAGI passes $150,000 (single) or $300,000 (joint). The deduction is reduced by $100 for every $1,000 of income above that line, until it disappears entirely for higher earners.
| Filing status | Max deduction | Phase-out starts at |
|---|---|---|
| Single | $12,500 | $150,000 MAGI |
| Married filing jointly | $25,000 | $300,000 MAGI |
You Can Claim It Whether You Itemize or Not
One detail that trips people up: this deduction applies whether you itemize or take the standard deduction. It lowers your taxable income, but it does not reduce your adjusted gross income (AGI), so it won't change credits or limits that are based on AGI.
What This Tool Can’t Tell You
This calculator gives a planning estimate, nothing more. It can't file your return, confirm how your employer classified your overtime, or account for every credit and deduction on your actual Form 1040. Treat the number above as a starting point for a conversation with a tax professional, not a final answer.
For the official rules, see the IRS Schedule 1-A (Form 1040), which includes the qualified overtime compensation deduction. Last reviewed: October 2026.
How This Differs from a Regular Overtime or Paycheck Calculator
- A regular overtime calculator works out your gross overtime pay — rate times hours, with nothing about taxes.
- A paycheck or take-home pay calculator shows what you'll actually receive after standard withholding.
- This site does neither. It focuses on one question: how much of your overtime premium may qualify for the federal deduction, and roughly what that is worth on your return.
- It won't replace your payroll department's figures, and it isn't a general salary or paycheck estimator.
Who Qualifies
- The deduction is built around the Fair Labor Standards Act (FLSA), so eligibility depends on how your job is classified, not your job title or industry.
- If you're legally entitled to time-and-a-half under the FLSA, you're generally the kind of worker this deduction was written for. This can include salaried workers who are classified as non-exempt.
- Employees classified as exempt under the FLSA don't receive required overtime pay, so there's no qualifying premium to calculate. The result here will be $0.
- A $0 result usually means your overtime isn't FLSA-required overtime, not that the tool is broken. Confirm your classification with HR or payroll.
- Married couples must file jointly to claim the deduction, married filing separately returns cannot claim it, and a valid Social Security number is required. Check the IRS guidance for the full rules.
State Taxes and Your Overtime Paycheck
This calculator doesn't work out your state tax bill. The deduction is a federal rule, and many states haven't adopted anything similar. That means your state tax withholding on overtime often stays the same, even after the federal deduction applies on your return. A handful of states have no income tax at all, so the question doesn't apply there. In most other states, assuming your overtime is tax-free everywhere would overstate your real take-home pay.
If you want the fuller picture, our FAQ page covers how states treat this deduction, so you can see whether your overtime pay changes at all beyond the federal side of this estimate.
You can also read plain-language guides on overtime premium, eligibility, and W-2 reporting on our blog.