Skip to the calculator
Rule Calculator

No Tax on Overtime Calculator

With overtime pay for the year 12000 usd, overtime rate 1.5 x, adjusted gross income 68000 usd, no tax on overtime comes to $630 — what the deduction actually saves. It is reached in 20 steps, the last of which is 6130 - 5500, and each one is printed on the page with its numbers filled in. The formula is the one published by 26 U.S.C. § 225, not an approximation fitted to it.

Only the half above your regular rate qualifies, and the deduction saves you your bracket rate on it — this works out both, from the hours you actually worked.

Formula and sources checked · How we check

Overtime pay for the year 12000, Overtime rate 1.5 x, Adjusted gross income 68000, Filing status Single or head of household

$630

What the deduction actually saves for the example below. Editing a field recomputes the calculator below; this figure holds the answer the page was loaded with.

It is written into the HTML rather than drawn by a script, so a search engine reading this page without running JavaScript still finds an answer.

What the deduction actually saves
$630
The part above your regular rate
12000 * (1.5 - 1) / 1.54,000
Cap on the deduction
0 * 25000 + 1 * 1250012,500
Premium within the cap
min(4000, 12500)4,000
Where the deduction starts shrinking
0 * 300000 + 1 * 150000150,000
Lost to the income phase-out
floor(max(0, 68000 - 150000) / 1000) * 1000
Deduction you can claim
max(0, 4000 - 0)4,000
Standard deduction for 2026
0 * 32200 + 1 * 1610016,100
Top of the 10% band
0 * 24800 + 1 * 1240012,400
Top of the 12% band
0 * 100800 + 1 * 5040050,400
Top of the 22% band
0 * 211400 + 1 * 105700105,700
Top of the 24% band
0 * 403550 + 1 * 201775201,775
Top of the 32% band
0 * 512450 + 1 * 256225256,225
Top of the 35% band
0 * 768700 + 1 * 640600640,600
Taxable income without the deduction
max(0, 68000 - 16100)51,900
Taxable income with it
max(0, 51900 - 4000)47,900
Income tax without the deduction
6,130
Income tax with it
5,500
What the deduction actually saves
6130 - 5500630
Share of the overtime pay it saves
630 / 12000 * 1005.25 %
Social security and Medicare still charged on the overtime
12000 * 0.0765918

Ask about this in the chat

Worked example

$12,000 of time-and-a-half contains $4,000 of qualifying premium — the half, not the whole — and deducting it saves $630. That is 5.3% of the overtime pay rather than the hundred per cent the name suggests, and $918 of social security and Medicare is charged on all of it either way. The saving is not a clean 22% because the deduction straddles two bands.

How to work it out yourself

  1. 1.Enter the overtime pay as it appears on your stubs, at the full time-and-a-half amount. Only the premium above your regular rate qualifies under section 225, so at 1.5× that is a third of what you enter.
  2. 2.The overtime has to be the kind the Fair Labor Standards Act required. A contractual rate above the federal minimum, a shift differential, or overtime paid to an exempt employee by policy does not qualify.
  3. 3.Above $150,000 of income — $300,000 filing jointly — the deduction falls by $100 for every full $1,000, so it runs out at $275,000 single.
  4. 4.Read the saving rather than the deduction. Deducting $12,500 in the 22% band is worth $2,750.

The formula

  1. The part above your regular rate12000 * (1.5 - 1) / 1.5
  2. Cap on the deduction0 * 25000 + 1 * 12500
  3. Premium within the capmin(4000, 12500)
  4. Where the deduction starts shrinking0 * 300000 + 1 * 150000
  5. Lost to the income phase-outfloor(max(0, 68000 - 150000) / 1000) * 100
  6. Deduction you can claimmax(0, 4000 - 0)
  7. Standard deduction for 20260 * 32200 + 1 * 16100
  8. Top of the 10% band0 * 24800 + 1 * 12400
  9. Top of the 12% band0 * 100800 + 1 * 50400
  10. Top of the 22% band0 * 211400 + 1 * 105700
  11. Top of the 24% band0 * 403550 + 1 * 201775
  12. Top of the 32% band0 * 512450 + 1 * 256225
  13. Top of the 35% band0 * 768700 + 1 * 640600
  14. Taxable income without the deductionmax(0, 68000 - 16100)
  15. Taxable income with itmax(0, 51900 - 4000)
  16. Income tax without the deduction
  17. Income tax with it
  18. What the deduction actually saves6130 - 5500
  19. Share of the overtime pay it saves630 / 12000 * 100
  20. Social security and Medicare still charged on the overtime12000 * 0.0765

Source: 26 U.S.C. § 225 — qualified overtime compensation: the excess over the regular rate required by the FLSA, capped at $12,500, US Department of Labor — Fact Sheet #23: overtime pay requirements of the FLSA, IRS FS-2025-03 — tips, overtime, senior and car loan interest deductions

Questions people actually ask

Is overtime tax free now?
No, in two ways. Only the premium above your regular rate qualifies — the "half" of time-and-a-half, not the whole payment — and it is a deduction rather than an exemption, so it is worth your bracket rate on that half. On $12,000 of overtime pay at $68,000 of income the deduction saves $630, about 5% of the overtime. Social security and Medicare are charged on all of it regardless.
How much overtime can I deduct?
$12,500 of qualifying premium a year, or $25,000 on a joint return. At time-and-a-half that ceiling is reached at $37,500 of overtime pay for a single filer. The cap is on the deduction, not on the overtime.
Does my employer stop withholding tax on overtime?
No. Withholding runs on the tables as before, and the deduction is claimed on the return — so it arrives as a larger refund rather than a larger paycheck, unless you adjust your W-4. Employers do have to report qualified overtime separately, which is what makes the figure available at filing time.
Which years does this cover?
2025 through 2028. Section 225(g) ends the deduction for any tax year beginning after 31 December 2028.

Related

Put this calculator on your site

Free, no attribution required beyond the link.

<iframe src="https://rulecalculators.com/embed/no-tax-on-overtime" width="100%" height="420" style="border:1px solid #e7e4de;border-radius:12px" title="No Tax on Overtime Calculator"></iframe>
Did this answer your question?