No Tax on Overtime Calculator (2025 & 2026)
Calculate your OBBB overtime tax deduction — non-exempt workers can deduct up to $12,500 ($25,000 MFJ) of overtime premium pay for 2025-2028.
We built this calculator for hourly workers from the One Big Beautiful Bill Act (signed July 4, 2025). The overtime deduction covers only the 'premium portion' of overtime pay—the extra half of the time-and-a-half the Fair Labor Standards Act requires for hours beyond 40 a week.
Max Deduction (single)
Max Deduction (joint)
Phase-out Start (single / joint)
The Extra Half of Time-and-a-Half
How much overtime pay can I deduct in 2025?
Under the One Big Beautiful Bill Act (OBBB), hourly workers can deduct up to $12,500 (single) or $25,000 (married filing jointly) of overtime premium pay from federal income tax for tax years 2025-2028. Only the premium portion (the extra 50%) is deductible.
- Only FLSA-nonexempt employees qualify, and nonexempt status is not the same as being paid hourly
- Deductible amount is the 0.5x premium, not the full 1.5x overtime pay
- Phase-out begins above $150,000 modified AGI (single) or $300,000 (married filing jointly)
- Salaried/exempt employees do NOT qualify for this deduction
Source:IRS FS-2025-03
The OBBB overtime deduction is one of the cleanest wins for hourly workers in years — but it's narrower than the headlines suggested. Only the FLSA-required half-time premium counts, not your full overtime rate. And the deduction phases out above $150K single / $300K MFJ.
Real-world scenario
Manufacturing worker, $32/hr base, 400 OT hours in 2025
Time-and-a-half on $32 = $48/hr. The deductible portion is only the $16/hr premium (not the full $48). 400 OT hours × $16 = $6,400 deductible. As a single filer with $85,760 of wages (a full year of 40-hour weeks plus the overtime), the worker's taxable income falls from $70,010 to $63,610 after the $15,750 standard deduction, all of it in the 22% bracket: $1,408 saved on federal income tax for 2025 ($1,408 for 2026) — still subject to FICA.
The part most people miss
Salaried employees don't qualify even if they work 60-hour weeks. The deduction is tied to FLSA-required overtime, which only applies to non-exempt hourly workers. If your W-2 box 1 doesn't show a separate overtime breakdown, your payroll provider needs to start tracking it for 2025 — or you'll have to back into it from pay stubs at filing.
What Changed in 2025One Big Beautiful Bill Act
| Feature | Before OBBB (2024) | After OBBB (2025) | |
|---|---|---|---|
| Overtime Tax Deduction | No deduction existed | Up to $12,500 (single) / $25,000 (married) | |
| What's Deductible | N/A | Premium portion (0.5x rate) | |
| Who Qualifies | N/A | FLSA non-exempt employees | |
| Phase-Out (Single) | N/A | Starts at $150,000 | |
| Phase-Out (Married) | N/A | Starts at $300,000 | |
| Duration | N/A | Tax years 2025-2028 only |
Working overtime? The OBBB Act just made it tax-free.
The new overtime tax deduction can save hourly workers thousands. Non-exempt employees working over 40 hours/week can now deduct up to $12,500 in overtime premium pay.
Your Overtime Details
Savings use the 2025 brackets and standard deduction. OBBB overtime deduction applies 2025-2028.
Schedule 1-A modified AGI = AGI plus any amounts excluded under IRC §911 (foreign earned income), §931, or §933. If none apply, your AGI is your MAGI.
This calculator only computes the FLSA §7 premium for a single hourly rate. Any other structure changes the regular rate, so the qualifying premium has to come off your payroll records or the Box 12 code TT figure on your W-2.
Nonexempt is not the same as hourly. Exempt status turns on the FLSA salary and duties tests, so salaried, commissioned, piece-rate and day-rate workers can all be nonexempt, and some hourly workers are exempt. Only the FLSA §7-required premium qualifies — state-law, contractual, holiday and weekend premiums do not.
You Likely Qualify!
Based on your inputs, you appear to qualify for the full overtime tax deduction.
Your Overtime Tax Savings
Estimated annual tax savings
Savings = federal income tax before minus after the deduction, using the 2025 brackets and the $15,750 standard deduction (no 65+ or blind add-on).
This is an estimate for informational purposes. Consult a tax professional for advice.
What This Means
If you work 10 hours of overtime per week at $25/hour, you could save approximately $750 annually on your taxes.
Frequently Asked Questions
Understanding FLSA Non-Exempt Status
✓ You're Likely Non-Exempt (Eligible) If:
- • Paid hourly, not salary
- • Receive time-and-a-half for hours over 40/week
- • Work in retail, food service, healthcare (hourly roles)
- • Manufacturing or construction hourly workers
- • Administrative support paid hourly
✗ You're Likely Exempt (Not Eligible) If:
- • Salaried professional (lawyer, doctor, accountant)
- • Manager or supervisor (executive exemption)
- • Outside sales representatives
- • Computer professionals earning $27.63+/hour
- • Don't receive overtime pay regardless of hours
Sources & References
Primary references used for this content
Your Federal Income Tax
For Individuals
View on irs.gov
Tax Withholding and Estimated Tax
W-4 and quarterly payments
View on irs.gov
✓2 primary sources; links re-checked on a weekly rotation by the source watcher
Related OBBB Calculators2025
Related OBBB Guides2025
Does your state actually let you keep it?
Colorado, for example, requires an add-back of the federal overtime deduction on the state return. See where every state stands.
State Tips & Overtime Conformity Tracker →Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.