No Tax on Overtime: Frequently Asked Questions

You qualify if you are a W-2 employee classified as FLSA non-exempt, you receive time-and-a-half overtime under federal law (FLSA Section 7), you have a valid Social Security number, you are not filing as Married Filing Separately, and your Modified Adjusted Gross Income is below $275,000 (single) or $550,000 (joint).

Independent contractors, self-employed individuals, and FLSA-exempt salaried workers do not qualify. Read more in our Who Qualifies guide.

Most salaried workers are classified as FLSA exempt and earn no overtime — they cannot claim the deduction. If you are salaried but receive 1.5× pay for hours over 40 per week, your employer treats you as non-exempt and you may qualify.

The Department of Labor classifies some salaried workers earning under $684 per week as non-exempt. Check your pay stubs: if you see overtime line items at 1.5×, you're likely eligible.

If you receive a 1099-NEC or 1099-MISC for your work, you are not an employee under FLSA and cannot claim the overtime deduction even if you work long hours.

Self-employed workers, freelancers, and gig workers (Uber, DoorDash, etc.) all fall under this exclusion regardless of how their pay is structured.

California requires overtime after 8 hours in a day, but the OBBBA deduction applies only to overtime required under FLSA Section 7 — meaning hours over 40 per week. If your California overtime hours also exceed 40 per week, that portion qualifies.

Daily overtime under state law alone (without crossing 40 weekly hours) does not qualify. The same logic applies in any state with daily-overtime rules — only the FLSA-required portion is deductible.

The OBBBA created two separate deductions: up to $25,000 for qualified tips (IRC §224) and up to $12,500 for qualified overtime (IRC §225). Both are claimed on Schedule 1-A in different parts.

They have separate caps but share the same MAGI phase-out thresholds ($150K single / $300K joint). A server who works overtime hours could potentially claim both.

Married Filing Separately filers cannot claim the OBBBA overtime deduction. If you are married, you must file jointly to claim it. This rule is written directly into the OBBBA and cannot be worked around without changing your filing status.

If you and your spouse currently file separately for other reasons, run the numbers both ways — the overtime deduction may make joint filing more beneficial overall.

Premium pay paid for working a holiday or weekend shift, or shift differentials, are not qualified overtime if you didn't actually work more than 40 hours in that workweek. Only the FLSA-required half-time premium for hours over 40 qualifies.

If you happen to work a holiday and that pushes you over 40 hours, the half-time premium on the over-40 hours qualifies — but the holiday premium itself (separate from FLSA overtime) does not.

If you earn $20/hour regular and $30/hour for overtime (1.5×), only the $10/hour premium counts as qualified overtime. Calculation: regular rate × 0.5 × overtime hours.

Per IRS Notice 2025-69, you can also use the shortcut: total time-and-a-half overtime pay ÷ 3. Both methods give the same answer. Use our calculator to do the math automatically.

Up to $12,500 of qualified overtime per single return, $25,000 per joint return. The joint cap of $25,000 is the combined total for both spouses, not per spouse.

Head of Household uses the $12,500 single cap. The cap is then reduced by phase-out if your MAGI exceeds the threshold.

The deduction is reduced by $100 for every $1,000 of MAGI above $150,000 (single, HoH) or $300,000 (joint). It reaches $0 at $275,000 (single) or $550,000 (joint).

Example: a single filer with $200,000 MAGI is $50,000 over the threshold, generating a $5,000 reduction. Their $12,500 cap becomes $7,500.

Combine your qualified overtime from both jobs and report the total on Schedule 1-A, Part III. The deduction cap applies to your return, not per employer.

Per IRS Notice 2025-69, you may use different calculation methods for each employer if needed (for example, divide-by-3 for one and direct rate × 0.5 × hours for another).

The amount above 1.5× is not deductible. If your statement shows total double-time pay, divide by 4 to get the half-time portion. If it shows the full premium (one full hourly rate above regular), divide by 2.

IRS Notice 2025-69 provides explicit examples for this. Construction workers under collective bargaining agreements with double-time often face this situation.

Sum your overtime hours across the full year, then multiply by 0.5 × your regular rate. Or check your final 2025 pay stub which usually shows year-to-date totals.

The simplest method per IRS Notice 2025-69 is to take the total time-and-a-half overtime pay for the year and divide by 3. See our W-2 guide for full details.

The $12,500 single ($25,000 joint) cap is per tax return, not per employer. Combine all qualified overtime from all your W-2 jobs into a single figure on Schedule 1-A.

If your combined overtime premium across jobs exceeds the cap, you simply enter the cap amount as your deduction.

Form 1040, Schedule 1-A, Part III. The qualified overtime amount is entered there, and the resulting deduction (line 21) flows to Form 1040 line 13b along with any other Schedule 1-A deductions.

Schedule 1-A is new for tax year 2025 and is included with the Form 1040 instructions. Major tax software (TurboTax, H&R Block, FreeTaxUSA) supports it automatically.

The OBBBA overtime deduction is a below-the-line deduction available to both standard-deduction takers and itemizers. You do not need to itemize on Schedule A to claim it.

Per IRS guidance, it works regardless of which method you use for your other deductions.

The overtime deduction is independent of your itemizing decision. It reduces your taxable income whether you take the standard deduction on line 12 of Form 1040 or itemize on Schedule A.

If you already filed your 2025 return without claiming the deduction, you can file Form 1040-X to amend within three years of the original filing date. The deduction was created retroactive to January 1, 2025, so all of 2025 is eligible.

There is no prior year to amend — the deduction did not exist before 2025.

The overtime deduction is below-the-line, so it does not reduce your AGI used for EITC eligibility. Your overtime pay still counts as earned income for EITC purposes.

The deduction reduces taxable income but does not change EITC qualification or amount calculated from your AGI and earned income.

The Child Tax Credit phases out based on MAGI. The overtime deduction does not directly change MAGI (it's below the AGI line), but lowering taxable income can increase your refund.

For most middle-income families, claiming the overtime deduction does not push them into a different CTC phase-out tier.

You claim it on Schedule 1-A of Form 1040, as an above-the-line deduction for tax years 2025 through 2028. The qualifying overtime premium amount flows to Form 1040 line 13b.

Your overtime pay is added to your regular income and taxed at your marginal bracket, which may be 10%, 12%, 22%, or higher. The OBBBA deduction then reduces your federal taxable income by your qualifying overtime premium (0.5× portion), effectively lowering the tax on that portion.

In TurboTax, the OBBBA overtime deduction appears in the Deductions & Credits section. Search for "overtime deduction" or "Schedule 1-A" in the TurboTax search bar. Enter your qualifying overtime premium amount from your W-2 Box 14 or pay stub calculation.

Yes, if you qualify for the OBBBA deduction. Working overtime increases your income but also increases your deductible amount, which can result in a larger refund when you file. The deduction reduces your federal taxable income by the 0.5× overtime premium, up to $12,500 (single) or $25,000 (married filing jointly).

For tax year 2025, employers were not required to break out qualified overtime separately under IRS Notice 2025-62. Use the methods in IRS Notice 2025-69 to calculate from pay stubs or year-end summaries.

The simplest method: take your total overtime pay for the year and divide by 3 (for time-and-a-half). See our W-2 guide for step-by-step instructions.

Keep your W-2, all 2025 pay stubs (especially the final one with year-to-date totals), any year-end pay summary from your employer, and a copy of your filed Schedule 1-A.

The IRS standard audit window is three years from your filing date — keep records at least that long, longer if you can. Digital scans count.

Try in this order: (1) request records from your former payroll provider (ADP, Paychex, Gusto often retain data even after the employer closes), (2) check your bank statements for direct deposit history, (3) request your wage transcript from the Social Security Administration or IRS Form W-2 transcript via irs.gov.

If documentation is impossible to obtain, consult a tax professional — partial records may still support a reasonable estimate.

Beginning with tax year 2026, employers are required to separately report qualified overtime compensation on Form W-2. The IRS has signaled this will likely be a new code under Box 12 (some sources reference 'Code TT'), but the exact code letter is being finalized by the IRS as of mid-2026.

Whatever the field, your 2026 W-2 will show an explicit dollar amount labeled as qualified overtime — no calculation needed.

The deduction is effective for tax years 2025 through 2028. Overtime earned in 2024 is not deductible.

The cutoff is when wages were paid, not when hours were worked: if you earned overtime hours in late December 2024 but received the paycheck in January 2025, those wages count as 2025 income and qualify.

Three 12-hour shifts equal 36 hours per week — usually no overtime. If you pick up extra shifts and exceed 40 hours, those extra hours qualify.

Healthcare workers may also be on a 207(k) work period (typically 8/80) — in that case, your employer should track overtime per that schedule and report total qualified overtime on your W-2 or pay stub.

"Salaried" refers to how you're paid (a fixed salary rather than hourly), not your FLSA status. Salaried non-exempt workers do receive overtime — and the half-time premium qualifies for the deduction.

If your employer is paying you 1.5× for hours over 40, your employer has classified you as non-exempt. Confirm with HR if uncertain.

If you have $20,000 in qualified overtime and your spouse has $15,000 (combined $35,000), your joint deduction is capped at $25,000. Married Filing Separately is not allowed at all.

The combined-cap rule is set by IRC §225 and confirmed in TurboTax, Fidelity, and IRS guidance.

FICA (Social Security 6.2% + Medicare 1.45% = 7.65%) still applies in full to all overtime pay. The OBBBA deduction reduces federal income tax only.

Your employer continues to withhold FICA on every dollar of overtime, including the deductible premium portion. Same applies to your employer's matching share.

As of May 2026, only seven states (Idaho, Iowa, Michigan, Montana, North Dakota, Oregon, South Carolina) automatically pass the federal deduction through to state taxable income.

Most other states with income taxes do not — see our State Tax Guide. Nine states have no income tax at all, so the question doesn't apply.

Seven states automatically conform via Federal Taxable Income starting point: Idaho, Iowa, Michigan, Montana, North Dakota, Oregon, and South Carolina. Colorado, Maine, and the District of Columbia have actively decoupled.

All other income-taxing states have not enacted conformity legislation as of May 2026. Status can change as state legislatures act.

The deduction is currently available for tax years 2025, 2026, 2027, and 2028 only. It expires after 2028 unless Congress passes a new law extending it.

The Joint Committee on Taxation projected the federal cost at roughly $33 billion per year, which makes extension a significant fiscal decision.