How "no tax on overtime" actually works
Despite the name, overtime is still taxed — but for tax years 2025 through 2028 the One Big Beautiful Bill Act lets you deduct the overtime premium from your federal taxable income. The deductible amount is only the extra half of time-and-a-half: if you earn $30/hour and $45/hour on overtime, only the extra $15/hour is deductible — not the full $45.
Key limits
- Deduction cap: $12,500 (single) / $25,000 (married filing jointly) per year.
- Phase-out starts at $150,000 MAGI (single) / $300,000 (joint) — reduced $100 per $1,000 over.
- Only FLSA-required overtime premiums qualify (W-2 employees, non-exempt). Independent contractors and exempt salaried workers do not qualify.
- FICA still applies: Social Security (6.2%) and Medicare (1.45%) are still withheld from all overtime pay.
- State income tax still applies in most states.
How to actually claim it: Schedule 1-A
The deduction is claimed on Schedule 1-A, the form the IRS created for the new 2025–2028 deductions, filed with your Form 1040. Nothing here requires itemizing — Schedule 1-A works alongside the standard deduction.
- You need a valid Social Security number to claim it.
- If you are married, you must file jointly. Married filing separately cannot take the deduction.
- Work out your qualified overtime figure. For 2025 the IRS gave employers transition relief, so your W-2 may not break out the premium portion. The Schedule 1-A instructions explain how to calculate it from your own records — the calculator above does the same arithmetic.
- Timing. Overtime earned during 2026 is reported on the return you file in 2027, and the deduction is scheduled to expire after tax year 2028.
Source: IRS — What to know about the No Tax on Overtime deduction.
Frequently asked questions
Do I need to itemize?
No — this is an above-the-line deduction available with the standard deduction.
Will my paycheck get bigger right away?
Not automatically. Withholding tables may not fully reflect the deduction, so much of the benefit arrives as a larger refund when you file.
Does double-time count?
Only the premium above your regular rate that is required by the FLSA qualifies. Premiums above that (e.g., contractual double-time beyond FLSA requirements) generally do not.
Where do I find my qualified overtime amount?
For 2025, the IRS did not require employers to report qualified overtime separately on a W-2, 1099-NEC or 1099-MISC, so many workers have to work the figure out themselves using the Schedule 1-A instructions and their pay stubs. If your employer does report a qualified overtime figure, use that rather than your own estimate.