No Tax on Overtime Calculator
Find out exactly how much federal tax you save on overtime pay under the One Big Beautiful Bill Act. Enter your wage, hours, and filing status — get your deduction in seconds.
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What Is the No Tax on Overtime Law?
In 2025, the United States enacted the One Big Beautiful Bill Act (OBBBA) — a sweeping piece of tax legislation that includes a provision many hourly workers had been waiting on for years: a federal income tax deduction on overtime premium pay. If you clock more than 40 hours a week and get time-and-a-half for it, a meaningful chunk of that extra pay is now shielded from federal income tax.
This isn't a permanent law change — it runs from tax year 2025 through 2028 — but for millions of workers in healthcare, manufacturing, logistics, retail, and construction, the annual savings can be substantial. Our calculator above gives you the exact number in under 30 seconds.
If you also want to see how your total hourly compensation stacks up, try our Salary to Hourly Calculator alongside this tool.
How the Overtime Tax Deduction Works
Here's what makes this provision precise — and often misunderstood. The law doesn't exempt all of your overtime paycheck. It exempts only the overtime premium: the extra 50 cents on every overtime dollar.
Your regular wage: $20/hr
Overtime rate (1.5×): $30/hr
Overtime premium (the deductible part): $10/hr
You work 300 overtime hours → Premium = $3,000
At a 22% tax rate → $660 saved
The maximum deduction is capped at $12,500 for single filers and $25,000 for married filing jointly. That means the absolute most anyone can save federally is roughly $4,625 (single at 37%) or $9,250 (married at 37%), assuming they hit the cap without any phase-out reduction.
If you're curious how overtime factors into your weekly paycheck as a whole, our Overtime Pay Calculator shows gross weekly pay including OT hours, and our Time Card Calculator handles the full daily breakdown.
Income Phase-Out: Does It Affect You?
The OBBBA deduction is designed primarily for middle-income workers, so it phases out at higher income levels. Here's how it works:
| Filing Status | Phase-Out Starts | Phase-Out Complete | Reduction Rate |
|---|---|---|---|
| Single | $150,000 MAGI | ~$275,000 | $100 per $1,000 over limit |
| Married Filing Jointly | $300,000 MAGI | ~$550,000 | $100 per $1,000 over limit |
Most hourly workers earning overtime — nurses, truck drivers, warehouse workers, factory employees — fall well below those thresholds and receive the full deduction. The phase-out primarily affects high-earning professionals who are still classified as non-exempt under FLSA.
Our calculator handles the phase-out math automatically. You just enter your MAGI and it adjusts your cap in real time.
Who Qualifies — and Who Doesn't
Not every worker who earns overtime qualifies for this deduction. The OBBBA ties eligibility to FLSA overtime rules, so it's worth being clear about who's in and who's out.
- Non-exempt hourly employees
- Workers paid time-and-a-half by FLSA mandate
- Healthcare workers (nurses, CNAs, techs)
- Manufacturing and warehouse staff
- Retail associates working over 40 hrs
- Truck drivers, delivery workers
- Construction laborers
- Salaried exempt employees
- Managers exempt under FLSA duties test
- Independent contractors / 1099 workers
- Gig economy workers
- Self-employed individuals
- Workers paid a flat salary regardless of hours
If you're unsure whether your role is FLSA-exempt, the Department of Labor's website has an exemption checker. When in doubt, talk to a tax professional — especially if your situation sits on the borderline.
Deduction vs. Tax Credit: An Important Distinction
This matters more than most people realize. The OBBBA overtime provision is a deduction, which means it reduces your taxable income — not your tax bill directly. The actual dollar savings depends entirely on your marginal tax rate.
Compare that to a tax credit, which cuts your tax bill dollar-for-dollar. A $10,000 deduction at 22% saves you $2,200. A $10,000 tax credit would save you exactly $10,000. Same number, very different result.
That's why entering your correct tax bracket in our calculator makes a real difference to the output. If you're unsure of your marginal rate, use the 22% bracket as a starting estimate — it covers a large portion of middle-income earners.
To understand how your annual earnings translate to a paycheck, our Biweekly to Yearly Salary Calculator is a useful companion tool.
Real-World Savings Scenarios
Numbers make more sense in context. Here are three worker profiles showing how the deduction plays out in practice:
These aren't hypothetical windfalls — they're straightforward examples of what regularly working overtime looks like under OBBBA. For workers putting in serious overtime hours, the cumulative savings over four years can reach well into the thousands.
What Records Should You Keep?
Claiming any tax deduction requires documentation, and the OBBBA overtime deduction is no different. Here's what to hold onto:
- Pay stubs showing overtime hours worked and the overtime rate paid separately from regular wages.
- W-2 forms — the IRS is expected to require employers to separately report overtime wages in a designated box, making documentation cleaner.
- Time records or timesheets confirming hours worked per week, especially weeks exceeding 40 hours.
- Employer classification documentation confirming you are a non-exempt employee under FLSA.
Keep these records for at least three years after filing. If your employer does not separately itemize overtime on your pay stub, request clarification from HR before tax season. Detailed records will simplify the deduction claim considerably.
If you're managing payroll or freelance income alongside overtime, our Sales Tax Calculator and Salary to Hourly Calculator round out the financial picture.
This calculator is provided for educational and informational purposes only. It does not constitute tax, legal, or financial advice. Results are estimates based on publicly available OBBBA provisions and may not reflect your complete tax situation. Tax laws change, phase-out thresholds may be adjusted, and individual circumstances vary. Always consult a qualified tax professional or CPA before making financial decisions based on these estimates. This tool does not account for state income taxes, FICA obligations, alternative minimum tax, or other individual factors that may affect your actual tax liability.
Frequently Asked Questions
The No Tax on Overtime provision is part of the One Big Beautiful Bill Act (OBBBA), signed into law and effective for tax years 2025 through 2028. It creates a federal income tax deduction for the overtime premium portion of overtime pay — specifically the extra 50% (the 0.5× above regular pay) that FLSA-covered workers receive for hours worked beyond 40 per week. The deduction cap is $12,500 for single filers and $25,000 for married filing jointly, with income-based phase-outs starting at $150,000 and $300,000 MAGI respectively. Social Security and Medicare taxes still apply to all wages.
Under the FLSA, overtime is paid at 1.5× your regular rate. The "premium" is just the extra 0.5× — the bonus added on top of what you'd normally earn for that hour. If your regular wage is $24/hr, overtime is $36/hr, and the premium is $12/hr. The OBBBA deducts only this premium amount because it represents the additional burden placed on overtime workers, not compensation for time already factored into regular wages. The base regular-wage component of overtime hours remains fully taxable as earned income.
No — the OBBBA overtime deduction is a federal income tax provision only. Whether your state adopts a conforming deduction depends entirely on your state legislature. States with no income tax (Texas, Florida, Nevada, etc.) are unaffected. States with their own income tax may or may not adopt the federal treatment — some typically conform to federal changes automatically, others require separate state legislation. Check your state's department of revenue for the most current guidance, or ask a local tax preparer.
The deduction cap is reduced by $100 for every $1,000 your MAGI exceeds the threshold ($150,000 for single, $300,000 for MFJ). For example, a single filer with $175,000 MAGI is $25,000 over the limit — so their cap is reduced by $2,500 (25 × $100), bringing it from $12,500 down to $10,000. If your MAGI is high enough that the reduction would wipe out the entire cap, the deduction reaches $0. Our calculator handles this math for you — just enter your MAGI and the adjustment is automatic.
It is a deduction, not a tax credit. The difference is significant. A deduction reduces your taxable income, and your actual tax savings equal the deduction multiplied by your marginal tax rate. A $10,000 deduction at 22% saves $2,200. A $10,000 tax credit would save $10,000 directly off your bill. So while the deduction is valuable — especially for workers with large overtime hours — the real-dollar benefit is proportional to your tax bracket. Our calculator shows you both the deduction amount and the estimated tax dollars saved so you can see the bottom line clearly.
That depends on future legislation. The OBBBA as currently written covers tax years 2025 through 2028 only. After that, the deduction would expire unless Congress passes new legislation to extend or make it permanent. Whether it gets extended will likely depend on political factors, budget considerations, and how popular the provision proves during the initial four years. Workers who benefit from the deduction should not assume it will automatically continue and should plan their finances accordingly. We will update this calculator if the law changes.
Yes, absolutely. The OBBBA deduction reduces federal income tax liability only. FICA taxes — Social Security at 6.2% and Medicare at 1.45% — are still calculated on all earned wages, including the overtime premium. So even if you receive the full federal income tax deduction, you will still owe payroll taxes on your entire overtime paycheck. Our calculator shows federal income tax savings only and does not include FICA calculations. Keep this in mind when estimating your actual take-home pay improvement.
You'll need documentation confirming you are an FLSA non-exempt employee, your overtime hours worked each week, and the overtime premium paid separately from regular wages. Pay stubs that break out overtime pay are ideal. The IRS is expected to require employers to report overtime wages separately on W-2 forms, which should simplify the claim process. Keep these records for at least three years after the relevant tax filing date. If your employer doesn't break out overtime separately on pay stubs, ask your HR or payroll department for clarification before tax season.