What counts as qualified overtime

Updated November 12, 2026

For the No Tax on Overtime deduction, qualified overtime compensation is the overtime pay the federal Fair Labor Standards Act (FLSA) requires, minus the straight-time part. For most hourly workers that's the extra half in time and a half:

hours over 40 in a workweek × ½ × your regular rate

If you're paid exactly time and a half, it's one third of your overtime pay. At $20 an hour, 10 overtime hours pay 10 × $30 = $300, and $100 of it is qualified.

Examples

Time and a half

$18 an hour, 45 hours in the week. Overtime pay: 5 × $27 = $135. Qualified: 5 × $9 = $45, one third of $135.

Double time

$20 an hour, 50 hours, and the employer pays double time for overtime: 10 × $40 = $400. The FLSA requires only time and a half, so the qualified amount is still 10 × $10 = $100. This is the IRS's own example. Dividing double-time pay by three would give $133.33, which is too much.

California daily overtime

$25 an hour. Four 10-hour days make 40 hours. California law pays 8 hours of daily overtime at time and a half, $300, but the week isn't over 40 hours, so the FLSA requires no overtime. Qualified: $0.

Five 10-hour days make 50 hours. California pays 10 hours of daily overtime, and the week is 10 hours over 40. Qualified: 10 × $12.50 = $125. Daily overtime counts only as far as it covers the hours over 40 in the week. The same goes for Alaska, Nevada and Colorado daily overtime.

Shift differential

$20 base rate plus a $2 night differential on all 50 hours. The FLSA regular rate includes the differential: $22. The qualified amount is 10 × $11 = $110, not $100. Non-discretionary bonuses and commissions raise the regular rate the same way.

Overtime after 37.5 hours under a contract

$24 an hour, 42 hours, and the union contract pays time and a half after 37.5 hours: 4.5 overtime hours. Only the 2 hours over 40 count: 2 × $12 = $24. The other 2.5 hours of overtime pay aren't qualified.

Weekend and holiday premiums

A premium for working a weekend or a holiday isn't qualified by itself. It counts only as far as your employer uses it to cover overtime for hours over 40 that week, and never more than hours over 40 × ½ × your regular rate.

Hospitals, police and firefighters, comp time

Some employers use other FLSA overtime methods, such as the 8-and-80 system in hospitals or work periods for police and firefighters. Then the overtime premium actually paid under that method counts. Public employees who take comp time instead of overtime pay have qualified overtime when the comp time is paid: when they use it as paid time off or get it paid out.

Exempt salaried employees

If you're exempt from FLSA overtime, none of your overtime pay is qualified, even if your employer or a contract pays it. See who qualifies.

Reading your pay stub

Pay stubs show overtime in different ways. How to find the qualified half:

From tax year 2026, your W-2 shows the total in box 12, code TT, and your deduction can't be more than that. Your pay stubs are how you check it. See W-2 box 12, code TT.

Workweeks, not pay periods

Overtime is counted per workweek: a fixed run of seven days your employer sets. Two weeks can't be averaged, so 50 hours one week and 30 the next is 10 hours of overtime. To work out one week's regular and overtime pay, use the overtime calculator. To estimate your deduction for the year, use the No Tax on Overtime calculator.

Sources

General information, not tax advice. Halfback is not affiliated with the IRS or any government agency.