No Tax on Overtime Calculator

How the qualified overtime deduction is calculated

Under FLSA section 7, overtime is paid at one and a half times your regular rate. Section 225 deducts only the part in excess of the regular rate — the half, not the whole. A $30/hr worker paid $45/hr for an overtime hour has $15 of qualified overtime compensation from that hour, not $45.

That premium is then capped at $12,500, doubled to $25,000 on a joint return, and the cap shrinks by $100 for every $1,000 of MAGI above $150,000 ($300,000 joint). Because the cap and the phase-out rate are both fixed, the deduction dies at a predictable point: $275,000 of MAGI for a single filer, $550,000 for a couple.

gross overtime pay = regular rate × 1.5 × overtime hours qualified premium = regular rate × 0.5 × overtime hours ^^^^ this is what §225 deducts — the half, not the whole ceiling = $12,500 single/HOH $25,000 joint excess = max(0, MAGI − threshold) threshold: $150,000 single/HOH, $300,000 joint reduction = (excess ÷ 1,000) × $100 (10% of the excess) your ceiling = max(0, ceiling − reduction) deduction = min(qualified premium, your ceiling) ceiling reaches $0 at $275,000 single/HOH $550,000 joint tax saved = tax(taxable income) − tax(taxable income − deduction)

regular rate

Your straight-time hourly rate under the FLSA — not just base pay — the FLSA regular rate includes non-discretionary bonuses and shift differentials, which is why your W-2 figure may differ from this page's estimate

overtime hours

Hours worked over 40 in a workweek, summed across the year — the workweek is the unit; 50 hours one week and 30 the next is 10 overtime hours, not zero

qualified premium

The 0.5× portion — the only deductible part — reported by your employer in box 12 of your W-2 under code TT; that figure, not this estimate, goes on the return

ceiling

$12,500, or $25,000 on a joint return — one of the few OBBBA caps that genuinely doubles for a couple — the tips cap does not

MAGI

AGI plus any foreign-earned-income exclusions — includes the overtime pay itself, so heavy overtime can push you into your own phase-out

The premium-only rule is the single most misreported detail of the whole package, and it changes the value of the provision by a factor of three. Coverage that quotes "$12,500 of tax-free overtime" is describing a cap that a worker reaches only after earning $37,500 of gross overtime pay — 833 hours at a $30 regular rate, which is 16 hours of overtime every week of the year.

Only overtime the FLSA actually requires counts. Double-time on a holiday, a contractual premium after 8 hours in a day where state law goes beyond the federal standard, or an overtime rate your union negotiated above 1.5× — the excess over the FLSA-required amount is outside the deduction. So is anything paid to an exempt employee or a contractor. If you're weighing employment types, the 1099 vs W-2 calculator prices the wider difference.

Worked examples

Frequently asked questions

What this overtime deduction calculator doesn't handle

It estimates a figure your employer will report exactly. Where the two differ, the W-2 wins.

• The FLSA regular rate is not your base hourly wage — The regular rate includes non-discretionary bonuses, shift differentials, commissions and most other compensation, spread across the hours worked. A worker with a $30 base wage and a quarterly production bonus has a regular rate above $30, and therefore a larger premium than this page computes. The calculator takes the rate you type at face value.
• Only FLSA-required overtime counts — Double-time, contractual premiums above 1.5×, and daily overtime required by state law but not by the FLSA are excluded to the extent they exceed the federal requirement. This page assumes every hour you enter was paid at exactly time-and-a-half under section 7.
• Weekly, not annual, arithmetic — Overtime is determined workweek by workweek — 50 hours one week and 30 the next produces 10 overtime hours, not an averaged zero. Entering an annual total is fine if you know it; deriving it from an annual hours figure is not, and this page cannot tell which you did.
• Not strictly a W-2-only deduction — Schedule 1-A line 14b accepts qualified overtime reported on Form 1099-NEC box 1 or Form 1099-MISC box 3, so the deduction is not confined to W-2 wages in the way most coverage implies. What is required is that the pay be FLSA-required overtime; this calculator models the ordinary W-2 case and asks only about exempt status.
• Highly compensated and excluded occupations — The provision carries exclusions this calculator does not test for, and the deduction requires a work-authorized Social Security number on the return for the taxpayer claiming it.
• Withholding is unchanged — Nothing here changes what comes out of your paycheck. The deduction is claimed on the return and arrives as a smaller bill or a larger refund the following year. If you'd rather have the money during the year, the W-4 is the lever, not this deduction.
• State tax and FICA — Federal income tax only. Overtime remains fully subject to Social Security and Medicare — on this page's defaults that payroll tax exceeds the income tax the deduction saves — and states tax overtime normally unless they have specifically conformed.