See how much overtime pay you keep—and what the 2026 deduction can save
Working overtime can increase your paycheck, but federal income tax, Social Security, Medicare and state taxes may still apply. The new federal qualified-overtime deduction can reduce federal income tax for eligible workers, but it does not make every overtime dollar tax-free.
Enter your hourly rate and overtime hours to estimate gross overtime, the FLSA-required premium, potential federal tax savings and additional take-home earnings. If you already have the qualified overtime amount reported by your employer, use the W-2 premium entry option instead.
2026 overtime pay and deduction calculator
Choose the entry method that matches your information. The estimate uses 2026 federal tax brackets and the eligible overtime deduction rules; it does not reproduce an employer’s exact withholding procedure.
Is overtime tax-free in 2026?
No, not completely. The new federal law creates a deduction for certain FLSA-required overtime premium compensation, not a general exemption for all overtime wages. The regular-rate portion of overtime pay remains taxable, and Social Security and Medicare generally continue to apply.
Typical overtime pay
Most eligible nonexempt workers must receive at least time-and-a-half for hours worked beyond 40 in an FLSA workweek.
Usually deductible premium
The portion above regular pay required by the FLSA generally qualifies before deduction caps and income limits.
Tax-free overtime?
No. Qualifying overtime may reduce federal taxable income but does not remove all federal, payroll or state taxes.
Example: you earn $20 per hour
If you work eligible overtime at $30 per hour, every overtime hour consists of $20 of straight-time pay plus a $10 premium.
In this situation, the potential deduction is the $10 premium per eligible overtime hour, not the full $30, provided all applicable eligibility, reporting, annual deduction cap and income-limit requirements are satisfied.
The $20 regular-rate amount and the overtime premium remain part of wages for applicable payroll taxes.
How the No Tax on Overtime deduction works
The deduction was enacted for tax years 2025 through 2028. It covers qualifying compensation required under Section 7 of the Fair Labor Standards Act, subject to the worker’s filing status, modified adjusted gross income and other rules.
| Requirement | 2026 rule |
|---|---|
| Qualifying compensation | Generally the overtime premium above regular pay that the FLSA requires |
| Maximum per nonjoint return | $12,500 annually |
| Maximum for married filing jointly | $25,000 per joint return, not separately per spouse |
| Single or head-of-household MAGI threshold | $150,000 before phaseout begins |
| Married-joint MAGI threshold | $300,000 before phaseout begins |
| Phaseout formula | Reduce the otherwise eligible amount by $100 for each complete $1,000 of MAGI above the threshold |
| Married filing separately | Cannot claim the deduction |
| Social Security number | A valid employment-authorized SSN is required for the recipient of qualifying overtime |
| Reporting for 2026 | Qualified overtime compensation reported on W-2 Box 12, code TT |
| Deduction type | Available whether the taxpayer uses the standard deduction or itemizes |
What if an employer pays double time?
Suppose your regular pay is $25 per hour and your employer pays $50 per hour for overtime. The full additional $25 above regular pay does not automatically qualify for the federal deduction.
For ordinary FLSA-required overtime, the amount qualifying under federal law is generally only the $12.50 half-time premium required by the FLSA. The additional premium paid voluntarily, under state law or a contract generally does not increase the deductible amount.
Why this is a deduction, not a dollar-for-dollar tax credit
A $4,000 qualifying deduction does not usually give you $4,000 in tax savings. It reduces federal taxable income, and the amount saved depends on your income-tax situation.
For example, if the entire $4,000 deduction offsets taxable income otherwise taxed at 12%, the estimated federal income tax savings would be $480. At a 22% marginal rate, the corresponding savings could be $880, assuming the entire amount falls within that bracket and no other tax adjustments apply.
2026 overtime pay and deductible premium examples
The following table shows gross overtime compensation and the FLSA half-time premium for typical hourly employees paid at 1.5 times their regular rate.
It assumes overtime hours are worked beyond 40 hours in the relevant workweek and that the employee is covered and nonexempt under the FLSA.
| Regular hourly rate | Overtime schedule | Annual gross overtime | Potential qualified premium |
|---|---|---|---|
| $20 | 5 hours × 40 weeks | $6,000 | $2,000 |
| $25 | 8 hours × 40 weeks | $12,000 | $4,000 |
| $30 | 10 hours × 50 weeks | $22,500 | $7,500 |
| $40 | 10 hours × 50 weeks | $30,000 | $10,000 |
| $50 | 10 hours × 50 weeks | $37,500 | $12,500 |
Worked example: $25/hour with eight overtime hours for 40 weeks
Overtime earnings
- Regular rate: $25/hour
- Overtime rate: $37.50/hour
- Total overtime hours: 320
- Gross overtime pay: $12,000
- Qualified half-time premium: $4,000
Federal deduction result
- Regular wages: $52,000
- Gross wages including overtime: $64,000
- Single-filer standard deduction: $16,100
- Qualified overtime deduction: $4,000
- Estimated federal income tax saved: $480
This $480 benefit results from comparing the 2026 single-filer federal tax calculation with and without the $4,000 overtime deduction. It assumes no other income, tax credits or adjustments.
Payroll taxes still apply to the overtime wages. In this example, the normal employee Social Security and Medicare amounts attributable to the additional $12,000 overtime are approximately $918. The exact after-tax overtime amount also depends on federal income tax and any applicable state taxes.
Which overtime hours qualify for the federal deduction?
The federal deduction is linked to the overtime requirements of the Fair Labor Standards Act, not simply to whether a paystub contains a line called “overtime.”
Usually eligible, subject to all rules
- Covered nonexempt employees working beyond 40 hours in an FLSA workweek
- Required premium pay above the FLSA regular rate
- Qualifying overtime reported properly by the employer
- Employees meeting filing-status, SSN and income-limit requirements
Not automatically eligible
- Overtime paid only because of a state daily-overtime requirement
- Voluntary weekend or holiday premium payments without qualifying FLSA overtime
- Premiums required only by an employment contract or union agreement
- Overtime compensation paid to an employee exempt from the FLSA overtime requirement
Does working more than eight hours in one day qualify?
Not necessarily. Federal overtime law generally applies after 40 hours in a workweek, not after a fixed number of hours in a single day. Some states require daily overtime, but a state-only overtime premium is not automatically qualifying compensation for the federal deduction.
What if you work only 38 hours in a week?
If an employee ordinarily works 30 hours and then receives premium pay for eight additional hours, the total is 38 hours. Under the normal federal workweek rule, those eight hours are not FLSA-required overtime merely because the employer pays a premium.
The calculator’s hourly method distinguishes additional paid hours from hours beyond the 40-hour FLSA threshold so that a short workweek does not incorrectly produce a federal deduction.
What about nurses, firefighters, police officers and other employees?
Some workers are subject to special FLSA rules, including certain hospital employees under an eligible 8-and-80 arrangement, public-sector safety workers and government employees who receive qualifying compensatory time. Their overtime calculations may not match a basic 40-hour hourly model.
If your work falls under a special rule, confirm the qualified overtime premium with payroll or a tax professional rather than relying only on the standard hourly formula.
Official reference: U.S. Department of Labor — Overtime Pay and IRS Fact Sheet FS-2026-13.
What happens when income exceeds $150,000 or $300,000?
The federal overtime deduction begins to decrease when modified adjusted gross income exceeds $150,000 for most eligible nonjoint returns or $300,000 for married couples filing jointly.
| MAGI (single filer) | Phaseout reduction | Remaining deduction if initial amount is $12,500 |
|---|---|---|
| $150,000 | $0 | $12,500 |
| $160,000 | $1,000 | $11,500 |
| $175,000 | $2,500 | $10,000 |
| $200,000 | $5,000 | $7,500 |
| $250,000 | $10,000 | $2,500 |
| $275,000 | $12,500 | $0 |
For married filing jointly, the phaseout begins above $300,000, and the deduction cap is $25,000 for the combined return. The deduction may reach zero at sufficiently high income even when the worker earned qualifying overtime.
These examples assume enough eligible premium to reach the initial cap. If the actual eligible amount is lower, the phaseout reduces that lower amount instead.
What counts as modified adjusted gross income?
For many W-2 employees, MAGI for this provision is close to federal adjusted gross income, but the statutory calculation also adds back certain excluded foreign, Puerto Rican and other specified income. The figure can include a spouse’s income on a joint return.
Do not subtract the qualified overtime deduction itself when finding MAGI for the phaseout. This is a separate deduction calculated after the income limitation is considered.
Why federal income tax, Social Security and Medicare can still come out of overtime pay
Overtime remains wages for payroll purposes. Employers generally continue federal income tax withholding under payroll rules even when the employee may qualify for a deduction on the federal tax return.
Social Security
Employee rate in 2026 up to the $184,500 Social Security taxable wage base, generally measured per employer.
Regular Medicare
Applies to covered wages without the Social Security wage cap.
Additional Medicare
Employers generally withhold an additional amount on Medicare wages they pay above $200,000 in the calendar year.
Paycheck withholding vs final tax liability
Paycheck withholding is the income tax your employer sends to the government during the year. Final income-tax liability is determined on your tax return after eligible deductions and credits.
Because the qualified overtime deduction is claimed through the return and can also be considered in an updated Form W-4, the amount withheld from one overtime check may be higher than the income tax ultimately attributable to that pay.
A larger paycheck after changing Form W-4 does not necessarily mean you owe less tax overall. It may mean less tax is prepaid through withholding, with the final reconciliation happening when you file.
What about state income taxes on overtime?
States do not all follow federal income-tax changes in the same way. Some impose no state income tax on wages, while others may have separate rules concerning federal deductions, taxable income and overtime.
The optional state/local percentage in this calculator is an illustrative rate applied to the gross overtime wages. It is not a comprehensive state tax calculation, and it does not assume your state automatically allows the federal qualified-overtime deduction.
Where to find qualified overtime on Form W-2: Box 12, Code TT
For tax year 2026, the IRS requires employers to separately report qualified overtime compensation on Form W-2, Box 12, using code TT. The number in that field represents employer-reported qualifying overtime premium, not necessarily the amount ultimately deductible after IRS limits.
Box 1
Taxable W-2 wages generally include overtime wages and reflect relevant pre-tax payroll exclusions.
Box 12, Code TT
The reported qualified overtime premium that can be considered under Schedule 1-A, subject to eligibility, deduction caps and the MAGI phaseout.
What if your W-2 is missing code TT?
- Review the W-2 issued by your employer for tax year 2026.
- Check Box 12 for code TT and compare the entry with your employer’s overtime records.
- If you believe an eligible amount is missing or too low, contact employer payroll and request an explanation.
- Ask the employer for Form W-2c if correction is necessary.
- Use the properly reported or corrected qualifying amount when completing the overtime deduction section of your federal return.
See 2026 General Instructions for Forms W-2 and W-3 and IRS Fact Sheet FS-2026-13, questions 19–23.
How to claim the 2026 overtime tax deduction
The IRS uses Schedule 1-A (Form 1040) for additional deductions such as qualified overtime compensation. Use the official current tax-year form and instructions when preparing your return, rather than an outdated draft.
- Confirm eligibility. Check that the overtime was FLSA-required and that you satisfy the filing-status and valid SSN requirements.
- Collect your tax documents. Gather Form W-2, especially Box 12 code TT, or other applicable information returns and supporting employer records.
- Open official IRS instructions. Visit IRS Form 1040 and related schedules and locate the current Schedule 1-A instructions.
- Enter qualified overtime. Use the amount properly reported by the employer or payer under the applicable instructions.
- Apply the annual cap. Limit the combined qualifying amount to $12,500, or $25,000 for married filing jointly.
- Calculate MAGI. Follow the form’s modified AGI instructions and apply any required phaseout reduction.
- Claim the allowed deduction. Include the result on the appropriate Schedule 1-A line and follow the instructions for your federal income-tax return.
- Reconcile tax and withholding. Review the final return and keep your W-2, pay records and tax calculations with your records.
Can you reduce withholding before you file?
Yes, potentially. The 2026 Form W-4 includes a deductions worksheet for qualified overtime, with the resulting adjustment generally reflected in Step 4(b). This can help an eligible employee account for an anticipated deduction through federal withholding.
- Visit the IRS Tax Withholding Estimator.
- Enter your current income, pay frequency, withholding and expected qualifying overtime information.
- Review the estimator’s recommendation and the current 2026 Form W-4 instructions.
- If a new W-4 is appropriate, follow the official worksheet rather than copying the calculator’s deduction estimate directly into payroll fields without considering other entries.
- Submit the updated W-4 to your employer or approved payroll system.
- Review a later paystub and revisit withholding if overtime or income changes substantially.
Why your overtime pay or deduction estimate may not match payroll
| Problem | Possible explanation | What to check |
|---|---|---|
| Entire overtime payment was treated as deductible | The premium and regular-rate portions were confused | Use only the FLSA-required premium, generally 0.5× regular rate |
| Deduction estimate is lower than premium | Annual cap or MAGI phaseout applies | Review combined qualifying premium and modified AGI |
| Overtime pay is reported but no deduction allowed | FLSA exemption, married-separate status, SSN rule or reporting issue | Verify qualification and W-2 code TT |
| Double-time premium was fully included | Employer paid more than the FLSA minimum | Verify the FLSA-required portion, not all additional compensation |
| Bonus changed the regular hourly rate | FLSA regular rate may include nondiscretionary remuneration | Ask payroll for its FLSA regular-rate computation |
| W-2 lacks code TT for 2026 | Employer reporting omission | Request correction using W-2c |
| Social Security still appears on overtime | Federal deduction does not remove ordinary FICA | Check the 2026 Social Security wage-base rules |
| Payroll withholding did not decrease | W-4 may not reflect the deduction or employer payroll method has not changed | Review W-4 Step 4(b) with the IRS estimator |
| State tax on overtime remains | State tax law differs from federal deduction rules | Check your state’s revenue department |
What this overtime tax calculator includes and does not include
Included
- Hourly pay and overtime rate calculation
- Time-and-a-half and double-time gross wages
- Weekly FLSA 40-hour threshold in standard hourly mode
- Potential qualified half-time premium
- Direct W-2 qualified-premium entry
- $12,500 and $25,000 annual deduction limits
- $150,000 and $300,000 MAGI phaseout thresholds
- Single, joint, head-of-household and married-separate filing choices
- 2026 federal progressive income tax brackets
- 2026 standard or custom itemized deduction
- Federal savings from deduction using tax liability differences
- Marginal employee Social Security and Medicare estimates
- Optional state/local marginal tax assumption
- Annual and pay-period overtime estimates when gross pay is known
Not automatically included
- Special FLSA 8-and-80 or public safety work-period rules
- Variable FLSA regular rates including some bonuses or incentives
- All employer overtime eligibility decisions
- Federal alternative minimum tax or tax-credit phaseouts
- Exact federal payroll withholding tables
- Other federal Schedule 1-A deductions
- State-specific overtime deduction conformity rules
- Comprehensive state or local income tax calculation
- Multiple employer wage-base coordination
- Self-employment tax and Schedule SE
- Joint spouse payroll FICA calculations
- Refund or balance-due prediction from year-to-date withholding
Use the calculator for a practical first estimate, then verify eligibility, W-2 reporting and deduction details with the IRS instructions and your employer’s payroll records.
Official 2026 overtime deduction and payroll resources
- IRS — Updated qualified overtime FAQs: Fact Sheet FS-2026-13 (August 2026). Covers FLSA eligibility, W-2 code TT, corrections, workweeks and deduction reporting.
- IRS — No Tax on Overtime overview: What to Know About the No Tax on Overtime Deduction. Explains limits, filing status and eligibility.
- IRS — Working Families Tax Cuts: Individuals and Workers. Official summary of provisions for 2025–2028.
- IRS — 2026 W-2 reporting: General Instructions for Forms W-2 and W-3. Includes Box 12 code TT.
- IRS — Federal tax brackets: Tax Year 2026 Inflation Adjustments. Includes 2026 standard deductions and marginal brackets.
- IRS — Form W-4: Employee’s Withholding Certificate. Includes the 2026 Step 4(b) deductions worksheet.
- IRS — Tax Withholding Estimator: Official Withholding Estimator. Helps assess changes to payroll withholding.
- IRS — Form 1040 and Schedule 1-A: Form 1040 and Current Instructions. Use the finalized schedule applicable to the tax year being filed.
- Department of Labor — Overtime rules: Overtime Pay Guidance and FLSA Fact Sheet #23.
- Social Security Administration: Contribution and Benefit Base. Confirms the 2026 $184,500 Social Security taxable wage base.
The sources above are official government documents and resources. TaxCalculatorUSA.org is an independent educational publisher, not a government department, tax-return filing service or employer payroll provider.
Overtime Tax Calculator 2026 FAQs
1. Is overtime pay tax-free in 2026?
No. The federal deduction applies to certain qualifying FLSA-required overtime premium compensation, subject to annual limits and income phaseouts. Regular overtime wages remain included in income, and Social Security, Medicare and potentially state taxes still apply.
2. How much overtime pay is deductible in 2026?
The annual federal deduction is capped at $12,500 per nonjoint return and $25,000 for married filing jointly. The deductible amount cannot exceed the eligible overtime premium and may be reduced by the modified AGI phaseout or other eligibility requirements.
3. Is the entire time-and-a-half overtime payment deductible?
No. For ordinary FLSA time-and-a-half pay, only the extra half-time premium above the regular rate generally qualifies. For example, on a $20 regular rate and $30 overtime rate, the potentially qualifying portion is $10 per overtime hour.
4. How does the overtime deduction phase out above $150,000?
For most eligible nonjoint filers, the deduction is reduced by $100 for each complete $1,000 of MAGI above $150,000. For married filing jointly, the threshold is $300,000. The reduction cannot make the deduction negative.
5. Can married people filing separately claim the overtime deduction?
No. Married taxpayers must file a joint return to claim the federal qualified overtime compensation deduction, subject to the other eligibility requirements.
6. Is double-time overtime pay fully deductible?
Usually not. If an employer pays double time for hours subject to the standard FLSA overtime rule, only the half-time premium required under federal law generally qualifies, even when the employer pays a larger premium.
7. Do Social Security and Medicare taxes still apply to overtime?
Yes. Overtime wages generally remain subject to Social Security and Medicare tax. The federal qualified-overtime deduction does not automatically remove those payroll taxes.
8. Where is qualified overtime reported on the 2026 W-2?
For tax year 2026, employers must report qualified overtime compensation on Form W-2 Box 12 using code TT. The reported amount is not necessarily the final allowed deduction because caps and income limitations may apply.
9. How do I claim the no-tax-on-overtime deduction?
Verify your qualifying overtime and employer reporting, then use the applicable Schedule 1-A (Form 1040) instructions to determine the allowed amount. Apply the annual cap and MAGI phaseout. Eligible employees may also review 2026 Form W-4 Step 4(b) and the IRS Tax Withholding Estimator to adjust withholding.
10. Why is the overtime deduction different from the tax savings?
A deduction reduces federal taxable income, not the tax bill dollar for dollar. For example, a qualifying $4,000 deduction entirely offsetting income taxed at 12% could save about $480 in federal income tax. Actual savings depend on the full tax calculation, including brackets, income and eligibility.