No Tax on Overtime Calculator – Your Real Deduction Under the New 2025 Law

One premium, four gates

Your overtime premium passes through the same four gates Schedule 1-A sets for it: it is measured, capped, trimmed by the phase-out, and only then priced against your tax bracket. This strip follows your own numbers through all four — change anything above and watch which gate bites.

How the deduction is worked out

The formula, and the IRS’s own example priced by hand

The two rules that decide most claims

Three workers, three deductions: the law as published

Status first, because this deduction’s status is temporary and must never be overstated. As published on this page, the No Tax on Overtime deduction is a federal income tax deduction under 26 USC section 225 and the IRS Schedule 1-A (Part III) worksheet, covering tax years 2025 through 2028. It shelters only the premium half of FLSA-required overtime, it is capped, it phases out with income, and it does not touch Social Security or Medicare tax or state tax. Nothing in this section extends it beyond those years, widens it beyond the premium, or presents it as permanent: after 2028, under the law as published here, there is no deduction to claim unless the law is extended, and any extension would be a new fact this page does not yet contain.

With that scope fixed, the table below runs three workers through the page’s four gates — premium, cap, phase-out, bracket — using only the page’s own figures and rates. The default row is the calculator’s own answer; the other rows are the same worksheet.

The first row is the whole premium surviving, and it is the case most workers will recognise: 300 × $30 × 0.5 = $4,500 of qualified premium, under the $12,500 single cap, with MAGI of $90,000 under the $150,000 phase-out threshold, so the full $4,500 becomes the deduction, worth $4,500 × 22% = $990.00. The second row is the cap biting: 500 × $60 × 0.5 = $15,000 of premium, but the single cap is $12,500, so $2,500 of premium simply stops counting — above the cap, extra overtime hours still pay you more, they just stop adding to the deduction — and the $12,500 deduction at 24% saves $3,000.00. The third row is the phase-out biting: a $12,500 premium at a MAGI of $200,000 sits $50,000 over the threshold, which is 50 whole thousands, so the trim is 50 × $100 = $5,000 and the deduction falls to $7,500, worth $7,500 × 22% = $1,650.00. Three workers, three different gates doing the trimming, one worksheet throughout.

The joint version of the same worksheet uses different constants and the same shape: a $25,000 cap, a $300,000 phase-out threshold, and a zero point at $550,000 of MAGI. A joint couple’s combined qualified premium is capped at $25,000 for the return, and the staircase then trims $100 per full $1,000 over $300,000. Married filing separately is not a smaller version of the same worksheet — it is barred outright by section 225, with no cap to apply and no phase-out to run, so a married couple must file jointly to claim anything at all. The filing-status choice is therefore not a detail on this page; for a married couple it is the difference between a deduction and zero.

The staircase at the edge

The phase-out is not a slope; it is a staircase, and the steps are worth walking one by one, because the rounding runs in your favour and the edges are where money is won or lost. The rule, from the page: every full $1,000 of MAGI over the threshold trims $100, and a partial thousand is rounded away before it can touch the deduction. For a single filer at the $150,000 threshold, the steps near the edge are: MAGI $150,999 — excess $999, zero whole thousands, trim $0. MAGI $151,000 — excess $1,000, one whole thousand, trim $100. MAGI $151,700 — the IRS’s own published example, excess $1,700, floor 1, trim $100, deduction $12,400 on a $12,500 premium. MAGI $152,000 — excess $2,000, two whole thousands, trim $200.

Two consequences follow. First, a small move in MAGI near a step edge can be worth exactly $100 of deduction — nothing for $999 of movement, then $100 for the next $1. If your income sits just over a step edge, the step is the cheapest $100 on your whole return, and it is worth knowing which side of the edge you are on before the year closes rather than after it. Second, the staircase sets the far wall exactly: a single filer holding the full $12,500 cap needs 125 whole thousands of excess to erase it, which is a MAGI of $275,000; a joint filer at the $25,000 cap needs 250, for $550,000. Beyond those walls the deduction is zero no matter how much premium was earned — the premium still paid you wages, but it no longer produces a deduction, and no further overtime hour changes that.

One more honesty note from the page’s disclaimer belongs here. The tax-saved figure prices the whole deduction at the single marginal bracket you select — the rate on your last dollar of income, not your average rate. If a large deduction straddles a bracket boundary, the true saving is a blend of two rates, not the single rate’s product. The table above uses single brackets throughout, as the calculator does; a deduction large enough to cross a boundary saves slightly less than the single-rate multiplication suggests, and the difference is the blend, not an error.

What the deduction does not do

The name promises more than the law delivers, and the page is careful to say so in three places. First, it does not make overtime tax-free: it shelters only the premium half, the extra 50% in time and a half, while the straight-time pay inside every overtime hour remains ordinary taxable wages. A worker who earned $13,500 of overtime pay at time and a half holds $4,500 of deductible premium — the total divided by 3 — and $9,000 of ordinary wages that are taxed exactly as before. Anyone who hears “no tax on overtime” and expects the whole overtime cheque to escape tax has heard the headline, not the worksheet.

Second, it does not touch the other taxes on the same dollars. Social Security and Medicare tax (FICA, 7.65%) still applies to every overtime dollar in full, and state income tax follows your own state’s rules — most states have not copied this deduction. Third, it does not change anything during the year: withholding on your paycheques stays as it was, and the saving arrives when you file, as a lower tax bill or a bigger refund. The deduction is claimed on Schedule 1-A when you file, above the line, and it works even if you take the standard deduction — it stacks on top of the standard deduction rather than competing with it, in the same family as the educator expense and student loan interest adjustments. A deduction that arrives at filing time must be budgeted as a filing-time event, not as extra money in any monthly paycheque.

Finally, the premium itself has a qualification rule that excludes real money some workers assume counts. Only premium required by FLSA section 7 — hours past 40 in a workweek — qualifies. A weekend or holiday uplift your employer pays purely by policy or contract, where federal law does not require overtime at all, is paid under a different rule and stays out of the calculation. When in doubt, the hours-and-rate route in step 1 of the calculator is the conservative figure, because it only ever counts the federal premium itself — and the pay-stub route, dividing a time-and-a-half total by 3 or a double-time total by 4, is only as good as the assumption that the whole total was FLSA-required premium in the first place.

Checks before you file

1. Is the premium traceable? For the 2025 tax year, employers were not required to break the premium out on the W-2, so a final pay stub or a separate employer statement is your evidence; from 2026, employers are expected to report the qualified amount in Box 12 of the W-2 with code TT, as the page’s FAQ states. Keep the stub either way — if the IRS ever asks, the premium has to be traceable to FLSA-required overtime.

2. Is the regular rate the real one? The FLSA regular rate may be higher than your base wage once bonuses, shift differentials and commissions are folded in. A higher regular rate means a higher premium, which means a larger qualified amount — but only the FLSA-required part of it. Compute the premium from the true regular rate, not from the base wage alone.

3. Is the year in scope? Tax years 2025 through 2028, as published. A claim for a year outside that window, or a claim that assumes the deduction continues beyond it, is not supported by the law as published on this page. Final IRS forms and guidance govern over any summary, including this one.

4. Is this advice, or an estimate? This calculator applies 26 USC section 225 and the Schedule 1-A worksheet as published; your real claim can differ, and the tax-saved figure is priced at a single bracket. Nothing here is tax, legal or financial advice. For a return with real money riding on it, a qualified tax professional is worth the fee — the page says so, and this section agrees.

No Tax on Overtime questions, answered

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