--- title: "No Tax on Overtime (2026): Who Qualifies and What You Save | TaxWren" description: "How the overtime deduction works in 2026: only the premium counts, up to $12,500 ($25,000 joint), paychecks are still taxed, and how much it saves." url: https://taxwren.com/blog/no-tax-on-overtime --- [Paychecks](/blog#paychecks) · Explainer # No tax on overtime, explained How the overtime deduction works in 2026: only the premium counts, up to $12,500 ($25,000 joint), paychecks are still taxed, and how much it saves. By the TaxWren team · Updated October 10, 2026 · 5 min read ## Key takeaways - "No tax on overtime" is a federal income tax deduction for tax years 2025 through 2028. Your overtime is still taxed on each paycheck, and Social Security, Medicare and state taxes still apply. - Only the premium counts: the "half" in time-and-a-half that federal law (the FLSA) requires. On $11,250 of overtime pay at time-and-a-half, $3,750 is deductible. - The deduction is capped at $12,500 per return ($25,000 if married filing jointly) and shrinks by $100 for every $1,000 of income above $150,000 ($300,000 joint). - From 2026, you can only deduct overtime your employer reports on your W-2 in box 12 with code TT. "No tax on overtime" does not make overtime tax-free. It is a federal income tax deduction, for tax years 2025 through 2028, for the extra pay that federal law requires when you work more than 40 hours in a week. You still pay tax on overtime in every paycheck. The saving comes when you file your return: up to $12,500 of overtime premium ($25,000 for a joint return) is subtracted from your taxable income. ## How does no tax on overtime work? Overtime is taxed as usual during the year: federal income tax is withheld, and so are Social Security and Medicare (7.65% together). When you file, you claim the deduction on Schedule 1-A of Form 1040. It lowers your taxable income, so you owe less federal income tax or get a bigger refund. You can take it whether you itemize or use the standard deduction. Like the standard deduction, it is subtracted after your adjusted gross income (AGI) is worked out. ## How much of my overtime is deductible? Only the premium: the "half" in time-and-a-half. The Fair Labor Standards Act (FLSA) requires employees it covers, unless they are exempt, to be paid at least 1.5 times their regular rate for hours over 40 in a workweek. The deductible part is the extra half of your regular rate for each of those hours, not the whole overtime check. $25 an hour, 6 hours of overtime a week Over 50 weeks that is 300 overtime hours. At time-and-a-half they pay $11,250. The premium is 300 hours × $12.50 (half the regular rate) = **$3,750**, and that is the amount you can deduct. With $63,250 of total wages as a single filer, the deduction saves about $450 in federal income tax. Overtime that goes beyond what the FLSA requires does not count. If you earn $20 an hour and get double time for 10 hours over 40, you are paid $400 for those hours. The FLSA only requires time-and-a-half ($300), and only its half-time premium, $100, is qualified overtime. The same applies to overtime paid under a state law or union contract for hours the FLSA does not cover, such as daily overtime after 8 hours: only the amount the FLSA itself requires counts. ## How much will no tax on overtime save me? Roughly the deductible amount times your top federal tax bracket. Here is the federal income tax saved in 2026 for workers with wages only and the standard deduction: | Filing status | Total wages | Overtime premium | Deduction | Tax saved | | --- | --- | --- | --- | --- | | Single | $45,000 | $3,000 | $3,000 | $360 | | Single | $80,000 | $8,000 | $8,000 | $1,760 | | Married filing jointly | $120,000 | $15,000 | $15,000 | $1,800 | | Single | $200,000 | $12,500 | $7,500 | $1,800 | 2026 federal brackets and standard deduction, no other income, deductions or credits. Federal income tax only: Social Security and Medicare do not change, and state tax is not included. The cap is per return, not per job: a single filer can deduct at most $12,500 in total. For higher earners the deduction shrinks by $100 for each full $1,000 of modified adjusted gross income (for most people, simply AGI) above $150,000, or $300,000 on a joint return. That is why the single filer with $200,000 in the table can deduct only $7,500. The deduction reaches zero at $275,000 for single filers ($550,000 joint). For your own numbers, the [no tax on overtime calculator](/no-tax-on-overtime-calculator) works from your hourly rate and overtime hours. The [take-home pay calculator](/take-home-pay-calculator) and the [income tax calculator](/income-tax-calculator) also take your overtime premium and include the deduction in your full tax picture. ## Who qualifies for no tax on overtime? - **Overtime-eligible employees under the FLSA.** That depends on your job and your employer, not on what your employer calls you. Employees exempt from FLSA overtime, such as most executive, administrative and professional staff (including teachers), outside sales staff, some computer professionals and some commissioned retail workers, do not have qualified overtime even if they are paid overtime anyway. - **A valid Social Security number**, valid for work, for the person who earned the overtime. - **Married couples must file jointly.** The deduction is not allowed on a married filing separately return. - **Not owners.** An employee who owns at least 20% of the business and helps run it is generally exempt from FLSA overtime, so their overtime does not qualify. Independent contractors are not paid FLSA overtime, so 1099 income generally does not qualify. If you are self-employed, the [1099 tax calculator](/1099-tax-calculator) shows what you owe. ## Does no tax on overtime lower the tax taken from my paycheck? Not by itself. Employers must keep withholding federal income tax on overtime as before, and Social Security and Medicare never change. If you expect a large deduction and want the money during the year instead of as a refund, you can give your employer a new Form W-4 and include the expected deduction in step 4(b). The IRS Tax Withholding Estimator also accounts for it. ## How do I claim the overtime deduction? On Schedule 1-A of Form 1040. From 2026, employers must report qualified overtime on your W-2 in box 12 with code TT, and that is the amount you start from. Schedule 1-A then applies the cap and the income limit. No code TT, no deduction From 2026, you can only deduct qualified overtime that appears on your W-2 in box 12, code TT. If the amount is missing or too low, ask your employer for a corrected W-2 (Form W-2c). A substitute Form 4852 does not count. If the amount is too high, you can only deduct the overtime premium you were actually paid. For 2025 returns, employers did not have to report overtime separately, so you could work out the premium yourself from pay stubs or other records, following the Schedule 1-A instructions. ## Does no tax on overtime apply to state taxes? It is a federal deduction. Each state decides whether its own income tax allows it, so check with your state's revenue department. In a state without an income tax on wages there is nothing to deduct it from: see [states with no income tax](/blog/states-with-no-income-tax). Tip Overtime and bonuses are both taxed through withholding first and settled when you file. For a one-off payment, the [bonus tax calculator](/bonus-tax-calculator) shows how much is withheld and what it really costs at year end. ## Sources 1. IRS: [Questions and answers about the deduction for qualified overtime compensation (FS-2026-13)](https://www.irs.gov/pub/taxpros/fs-2026-13.pdf) (official) 2. IRS: [What to know about the No Tax on Overtime deduction](https://www.irs.gov/newsroom/what-to-know-about-the-no-tax-on-overtime-deduction) (official) 3. IRS: [Schedule 1-A (Form 1040) 2026 draft, Part III](https://www.irs.gov/pub/irs-dft/f1040s1a--dft.pdf) (official) Figures come from the data files behind our calculators and update with them. See our [methodology](/methodology) and [editorial policy](/editorial-policy). This article is general information, not tax advice. ## Frequently asked questions ### Is overtime tax-free now? No. Overtime is still taxable income and is still taxed on your paycheck. Eligible workers can deduct the overtime premium, up to $12,500 ($25,000 joint), when they file their federal return, which lowers their income tax for the year. ### Do I still pay Social Security and Medicare on overtime? Yes. The deduction only reduces federal income tax. Social Security and Medicare are withheld from overtime the same way as from regular pay. ### Does double time count for the overtime deduction? Only the part federal law requires. If you earn $20 an hour and are paid double time for 10 hours over 40, you receive $400 for those hours, but only $100 (half your regular rate for each of those hours) is qualified overtime. ### Can salaried workers claim no tax on overtime? Only if they are overtime-eligible under the Fair Labor Standards Act. Workers who are exempt from FLSA overtime, such as most executive, administrative and professional employees, do not have qualified overtime even if their employer or a union contract pays them overtime. ### What if my W-2 does not show overtime in box 12, code TT? Ask your employer for a corrected W-2 (Form W-2c). From 2026, the IRS says you can only deduct the qualified overtime reported in box 12 with code TT, and a substitute Form 4852 does not count. ### How long does the no tax on overtime deduction last? It applies to tax years 2025 through 2028. It ends after 2028 unless Congress extends it. ## Run your own numbers - [No tax on overtime calculator](/no-tax-on-overtime-calculator) Qualified overtime premium, the no tax on overtime deduction after the cap and income limit, and the federal tax it saves. - [Take-home pay calculator](/take-home-pay-calculator) Gross to net salary after federal, FICA, state and local taxes. - [Income tax calculator](/income-tax-calculator) Federal and state income tax owed for 2026. ## More on paychecks - [Social Security tax cap 2026: wage base and maximum tax](/blog/social-security-tax-cap)