How the deduction works
- Qualified overtime: the premium part of overtime pay the Fair Labor Standards Act requires, usually the extra half of time-and-a-half for hours over 40 in a week.
- The limit: up to $12,500 a year ($25,000 on a joint return), reduced by $100 for every $1,000 your income goes over $150,000 ($300,000 if filing jointly).
- The saving: the deduction comes off your taxable income, so it saves tax at your own rate.
Example: you earn $25 an hour and work 5 hours of overtime a week for 40 weeks. Your overtime pay is $7,500, of which $2,500 is the premium. At the 12% rate, deducting $2,500 saves you $300 of federal income tax.
The calculator works out your federal and state tax with and without the deduction, so the saving includes any effect on your credits.
What it saves
$25 an hour, with overtime in 40 weeks of the year, for a single filer in 2026:
| Overtime a week | Overtime pay | Deductible part | Federal tax saved |
|---|---|---|---|
| 2 hours | $3,000 | $1,000 | $120 |
| 5 hours | $7,500 | $2,500 | $300 |
| 10 hours | $15,000 | $5,000 | $650 |
| 15 hours | $22,500 | $7,500 | $1,650 |
Only the extra half of time-and-a-half is deductible, so the deduction is a third of your overtime pay. Social Security and Medicare still come out of all of it.
How your pay changes it
5 hours of overtime a week for 40 weeks, for a single filer:
| Hourly pay | Pay for the year | Deductible part | Federal tax saved |
|---|---|---|---|
| $18 | $42,840 | $1,800 | $216 |
| $25 | $59,500 | $2,500 | $300 |
| $35 | $83,300 | $3,500 | $770 |
| $50 | $119,000 | $5,000 | $1,100 |
| $75 | $178,500 | $4,700 | $1,128 |
The saving follows your tax bracket: 12% of the deduction at $18 and $25 an hour, 22% at $35 and $50. At $75 an hour, pay passes $150,000, so the deduction is cut by $100 for every $1,000 over: $4,700 instead of $7,500.
Who can claim it
- You need a Social Security number that’s valid for work.
- If you’re married, you must file a joint return.
- It applies to the tax years 2025 to 2028.
How to claim it
You claim it on Schedule 1-A with your Form 1040. From 2026, you can only deduct the amount your employer reports on your W-2 in box 12 with code TT.
Does my state allow it?
The deduction is federal, and states decide for themselves.
In 2026, these states also let you deduct qualified overtime: Alabama (up to $1,000), Arizona, District of Columbia, Georgia (up to $1,750), Idaho, Indiana, Iowa, Michigan, Montana, North Dakota and Oregon. In the other states with an income tax, overtime is still taxed by the state.
The calculator follows your state’s rules. To see your overtime pay and take-home pay by the hour, use our hourly to salary calculator.