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.
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?
Employers must report qualified overtime compensation on your W-2. Use that figure when you file rather than your own estimate.