Use case · Tax years 2025–2028 · Estimates only · Updated October 2, 2026
How much overtime is tax free?
Direct answer
Only the FLSA premium — regular rate × 0.5 × hours over 40 in the workweek — and only against federal income tax for 2025–2028. The cap is $12,500 ($25,000 joint). At $25/hour, 10 overtime hours, 26 weeks, qualified overtime is $3,250. FICA still applies to every dollar.
The formula
deduction = min(rate × 0.5 × FLSA overtime hours, cap) − phase-out
At $20/hour the deductible piece is $10 per overtime hour, not the full $30 time-and-a-half rate. Double time does not double the deduction: $20/hour and 10 double-time hours pay $400.00, but qualified overtime is still $100.00.
Single-filer phase-out
| Income (MAGI) | Reduction | Deduction if you hit the $12,500 cap | Deduction if qualified OT is $6,000 |
|---|---|---|---|
| $150,000 | $0 | $12,500 | $6,000 |
| $160,000 | $1,000 | $11,500 | $5,000 |
| $175,000 | $2,500 | $10,000 | $3,500 |
| $200,000 | $5,000 | $7,500 | $1,000 |
| $225,000 | $7,500 | $5,000 | $0 |
| $250,000 | $10,000 | $2,500 | $0 |
| $275,000 | $12,500 | $0 | $0 |
Joint filers use a $25,000 cap and a $300,000 starting point. Married filing separately gets $0.
Where to claim it
- Schedule 1-A with Form 1040, whether you itemize or take the standard deduction.
- 2025: employers did not have to put it on the W-2. IRS Notice 2025-69 lets you compute it from pay stubs.
- 2026 and later: Form W-2 box 12, code TT. The IRS says you may deduct only the amount reported there.
- The law covers 2025 through 2028 unless Congress extends it.
Limits
- Exempt salaried workers and contractors do not qualify. Hours must be FLSA overtime, not only daily or weekend premiums.
- The deduction does not lower Social Security, Medicare, or withholding by itself. Update Form W-4 if you want less withheld in 2026.
- This page is an estimate of the federal rule, not tax advice. State treatment varies.
Use the calculator
Paycheck withholding: how is overtime taxed? Run your hours in the overtime tax calculator.