Deductions · calculator
No tax on overtime: the part of your overtime you can deduct
Only the premium above your regular rate counts, and the saving is that premium times your tax bracket.
No tax on overtime: your deduction
Overtime deduction (Schedule 1-A line 21)
$4,000
Federal income tax saved: about $880
- Qualified premium in that pay$4,000
- After the cap ($12,500, or $25,000 joint)$4,000
- Phase-out reduction$0
- Marginal bracket before the deduction22%
Only overtime the Fair Labor Standards Act requires counts: pay above 40 hours for a non-exempt worker. Overtime paid by contract or state law alone does not.
No tax on overtime lets a worker deduct the qualified overtime premium, the part of overtime pay above the regular rate that the Fair Labor Standards Act requires, up to $12,500 a year or $25,000 on a joint return, for tax years 2025 through 2028 (section 70202 of Public Law 119-21, Schedule 1-A Part III). It is not the whole overtime check: for time and a half, the deductible premium is one third of total overtime pay, so $15,000 of overtime holds $5,000 of premium, the example the IRS itself gives in Notice 2025-69. The deduction loses $100 for each full $1,000 of modified AGI above $150,000 ($300,000 joint). A single nurse with $82,000 of modified AGI deducts $5,000 and pays about $1,100 less federal income tax for 2026. Social Security and Medicare taxes are still due on all overtime pay. A valid Social Security number is required, and a married couple must file jointly to claim it.
Checked by Radif Partners · Editorial policy · How we calculate
From the pay stub to the deductible premium
The 2025 W-2 has no box for qualified overtime, so Notice 2025-69 lets workers rebuild the figure from their pay records. A payroll line labeled "overtime premium" can be used as it is. A line showing total overtime pay at time and a half is divided by three; at double time, by four. Compensatory time paid by a state or local employer at one and a half hours per hour worked is divided by three as well. For 2026 the employer reports the amount directly in box 12 of Form W-2 with code TT, or in box 14 of Form 1099-MISC and box 1d of Form 1099-NEC, according to the 2026 Form 1040-ES.
| What your stub shows | Amount | Qualified premium |
|---|---|---|
| Overtime premium only | $5,000 | $5,000 |
| Total overtime pay at 1.5x | $15,000 | $5,000 |
| Total overtime pay at 2x | $20,000 | $5,000 |
| Comp time paid at 1.5 hours per hour | $4,500 | $1,500 |
The cap, the phase-out and your bracket
Lines 15 to 21 of Schedule 1-A keep the smaller of the premium and $12,500 ($25,000 joint), then remove $100 per full $1,000 of modified AGI above $150,000 or $300,000, rounding the division down. The deduction is reached after AGI, so it does not shrink the income used for the phase-out. What it saves is the deduction times the rate of your top bracket: in the 22% bracket, $5,000 of premium saves $1,100; in the 12% bracket, $600. Use the bracket calculator to see where your income sits.
Schedule 1-A: the four new deductions together
Schedule 1-A line 38
$7,500
About $1,650 of federal income tax saved
| No tax on tips | $0 |
| No tax on overtime | $6,000 |
| Car loan interest | $1,500 |
| Enhanced deduction for seniors | $0 |
All four reduce taxable income, not AGI, and can be claimed with the standard deduction or itemizing. They run from 2025 through 2028.
Who misses out
Married people filing separately, workers without a valid Social Security number, exempt salaried staff and anyone paid overtime only because a state law or a union contract requires it beyond the federal rule. Overtime in the eight-hour daily sense some states use is not FLSA overtime unless the week passes 40 hours. A worker with both tips and overtime can claim no tax on tips as well, each with its own cap. Federal income tax withholding was not changed by the law, so most of the gain shows up as a larger refund; the refund estimator includes it.
Sources: IRS Schedule 1-A (Form 1040) 2025, Additional Deductions: tips, overtime, car loan interest, seniors; IRS IR-2025-114 and Notice 2025-69: tips and overtime for tax year 2025, with worked examples; Form 1040-ES (2026), changes to information returns for qualified overtime, read on October 11, 2026.