No Tax on Overtime rules
Updated November 12, 2026
"No Tax on Overtime" is a federal income tax deduction for qualified overtime compensation, added by the One Big Beautiful Bill Act (26 U.S.C. § 225). Overtime isn't tax-free: you deduct the qualified part on your return, within a yearly limit.
At a glance
| What you can deduct | The overtime premium the FLSA requires: half your regular rate for each hour over 40 in a workweek |
|---|---|
| Limit | $12,500 a year per return; $25,000 on a joint return |
| Phase-out | $100 less for each full $1,000 of modified AGI over $150,000 ($300,000 joint) |
| Years | Overtime paid in 2025, 2026, 2027 and 2028 |
| Married | Only on a joint return |
| Social Security number | Required, valid for employment |
| Where | Schedule 1-A (Form 1040), Part III. You don't have to itemize |
| From 2026 | No more than the amount on your W-2s in box 12, code TT |
Who qualifies
You need overtime pay that the federal Fair Labor Standards Act (FLSA) requires. That means you're covered by the FLSA and not exempt from its overtime rules, an "overtime-eligible" or non-exempt employee. Most hourly workers are.
Common exemptions, which mean no qualified overtime even if you get overtime pay:
- Executive, administrative and professional employees, including teachers
- Outside sales employees and some computer-related jobs
- Some commissioned employees of retail or service businesses
- Railroad and airline employees, taxi drivers and some motor carrier employees
- Some seasonal amusement or recreation employees and some agricultural workers
- Employees who own at least 20% of the business and help run it
A union contract or state law that gives you overtime doesn't make you eligible by itself. If you're not sure whether you're exempt, the U.S. Department of Labor explains the rules on its overtime page.
The limit: $12,500, or $25,000 joint
The limit is per tax return, not per person. A married couple filing jointly can deduct up to $25,000 in total, even if only one of them worked overtime. Qualified overtime above the limit isn't deductible and doesn't carry over to the next year.
The income phase-out
If your modified adjusted gross income (MAGI) is over $150,000, or $300,000 on a joint return, the deduction shrinks by $100 for each full $1,000 above that. Schedule 1-A counts only whole thousands: $1,500 over takes off $100, not $150. The reduction comes off after the limit, so a smaller deduction runs out sooner.
Single, head of household or qualifying surviving spouse:
| MAGI | With $12,500 qualified | With $5,000 qualified |
|---|---|---|
| $150,000 | $12,500 | $5,000 |
| $160,000 | $11,500 | $4,000 |
| $175,500 | $10,000 | $2,500 |
| $200,000 | $7,500 | $0 |
| $250,000 | $2,500 | $0 |
| $275,000 | $0 | $0 |
Married filing jointly:
| MAGI | With $25,000 qualified |
|---|---|
| $300,000 | $25,000 |
| $350,000 | $20,000 |
| $400,000 | $15,000 |
| $550,000 | $0 |
MAGI is your adjusted gross income plus certain income earned abroad or in U.S. territories that you excluded. For most W-2 workers, it's the adjusted gross income on Form 1040.
Married couples
If you're married, you can take the deduction only on a joint return. Married filing separately means no deduction for either spouse. If both of you had qualified overtime, both of you need a valid Social Security number on the return.
Which years count
Overtime paid in tax years 2025 through 2028. It counts in the year it's paid, not the year it's worked: overtime from the last week of December 2026 that's paid in January 2027 counts for 2027. The deduction ends after 2028 unless Congress extends it.
2025 and 2026 work differently
- 2025: employers didn't have to report qualified overtime separately, so most 2025 W-2s don't show it. You can work it out from your pay stubs and other records.
- 2026 to 2028: employers report it on Form W-2 in box 12, code TT, and you can't deduct more than that. If it's too low, you need a corrected W-2 (Form W-2c) from your employer. See W-2 box 12, code TT.
What the deduction doesn't do
- It doesn't lower Social Security or Medicare tax on your overtime.
- It doesn't change your paycheck by itself. Income tax is still withheld from overtime unless you give your employer a new Form W-4 that counts the deduction in step 4(b).
- It doesn't cover your whole overtime pay, only the qualified half.
- It doesn't decide your state income tax; that depends on your state's law.
- It's separate from the deduction for qualified tips ("No Tax on Tips").
Estimate yours
The No Tax on Overtime calculator applies the limit and the phase-out for your filing status, from your overtime hours and rate, your overtime pay or your W-2's code TT.
Sources
- 26 U.S.C. § 225, Qualified overtime compensation (Cornell LII)
- IRS FS-2026-13, questions and answers about the deduction (August 2026)
- Schedule 1-A (Form 1040) (IRS), Part III, lines 14–21
General information, not tax advice. Halfback is not affiliated with the IRS or any government agency.