How the No Tax on Overtime Deduction Works, Step by Step
In one paragraph: The deduction lets you subtract the "half" in time-and-a-half, the part of FLSA-required overtime pay above your regular rate, from your taxable income, up to $12,500 ($25,000 joint), for tax years 2025–2028. It phases out above $150,000 of MAGI ($300,000 joint), you must have a valid Social Security number, and married people must file jointly.
What the law actually does
Nothing is removed from your paycheck or W-2. Your employer still withholds and reports overtime the same way, and the full pay is in box 1. The change shows up when you file: you add a new schedule, Schedule 1-A, that lets you subtract a portion of that overtime from taxable income. The IRS describes the deduction as available to both itemizers and people who take the standard deduction.
Step 1: Know what counts as qualified overtime
"Qualified overtime compensation" is overtime pay required by section 7 of the Fair Labor Standards Act (FLSA) that exceeds your regular rate. For standard time-and-a-half it is the extra half. If you earn $24 an hour, an overtime hour at $36 contains $12 of qualified premium; the other $24 is your ordinary straight-time rate and does not qualify.
When your employer pays double time
You earn $20 an hour and work 10 overtime hours at double time ($40/hour): total overtime pay $400. The FLSA only required time-and-a-half, so only the 0.5× premium, $100, is qualified. The other $100 of premium beyond what the FLSA required is not deductible. The IRS Q&A says the same: if an employer pays double the regular rate, only the one-half portion relied on to comply with the FLSA is qualified overtime compensation.
Step 2: Add it up for the year
For 2026 and later, your employer must separately report qualified overtime. On the 2026 Form W-2 it is shown in box 12 with code TT. For 2025, many workers needed to use pay stubs, timekeeping records or employer statements and the IRS's transition methods. Keep your records.
Step 3: Apply the cap
The maximum deduction is $12,500 per return, or $25,000 on a joint return. A couple with two overtime earners shares one $25,000 cap.
Step 4: Check the income phase-out
Take your MAGI (modified adjusted gross income) and compare it with $150,000 ($300,000 joint). For each full $1,000 above the threshold, the deduction drops by $100. Partial thousands are ignored (rounded down).
Example
A single filer with $9,000 of qualified overtime and MAGI of $175,000 is $25,000 over the threshold: 25 whole thousands × $100 = $2,500 reduction. The deduction is $9,000 − $2,500 = $6,500. The deduction would reach zero at a MAGI of $275,000 if the starting amount were the $12,500 maximum.
Step 5: Claim it on Schedule 1-A
Fill out Part I (MAGI) and Part III (overtime) of Schedule 1-A and carry the total on Part VI to Form 1040 line 13b. Add your Social Security number, and if you are married, file jointly. See the Schedule 1-A walkthrough.
Who does not get the deduction
- Employees who are exempt from FLSA overtime, even if their employer pays extra for long hours.
- Taxpayers married filing separately.
- Anyone without a Social Security number valid for employment.
- Workers whose only "overtime" is required by state law or a union contract rather than the FLSA (IRS Publication 6133 says those amounts aren't deductible).
The dollar value is the deduction times your marginal federal rate, not the deduction itself. A $4,000 deduction in the 12% bracket saves about $480 in federal income tax. Use the overtime calculator to estimate yours.
Frequently asked questions
Is overtime pay removed from my W-2?
No. Your overtime is still included in W-2 box 1 wages. The deduction is claimed separately on Schedule 1-A and carried to Form 1040, which lowers your taxable income.
Does the deduction lower my Social Security and Medicare tax?
No. It is an income tax deduction. Payroll taxes on overtime pay are unchanged.
What if my employer does not separately report my overtime?
For tax year 2025, employers were not required to report it separately. The IRS said individuals could use the methods in Notice 2025-69 and the Schedule 1-A instructions to compute the amount. For 2026 and later, employers must report it separately.
Can I claim it if I am paid a salary?
Only if you are a salaried employee who is not exempt from FLSA overtime and you actually receive FLSA-required overtime pay. If you are exempt, you have no qualified overtime.
Sources and citations
Every dollar figure on this page was checked against the official pages below on November 14, 2026. If an agency updates its guidance, the agency page controls.
- IRS Fact Sheet FS-2025-03: Working Families Tax Cuts — Tax deductions for working Americans and seniors
- IRS FS-2026-01: Questions and answers about the deduction for qualified overtime compensation
- IRS: What to know about the No Tax on Overtime deduction
- 2025 Schedule 1-A (Form 1040), Additional Deductions (IRS)
- IRS Publication 6133 (Rev. 3-26): tips and overtime deductions
- IRS: General Instructions for Forms W-2 and W-3 (2026)