No tax on overtime, explained

Overtime is not tax free. What the law created is a federal income tax deduction for part of your overtime pay, and it only covers the extra half in time-and-a-half.

The deduction runs for tax years 2025 through 2028. It is capped at $12,500 a year, or $25,000 on a joint return, and it shrinks once income passes $150,000 ($300,000 joint). Social Security and Medicare come out of every overtime dollar either way. The deduction is federal only; state income tax follows each state's own rules. Everything below is computed on the 2026 federal tables this site uses everywhere else.

Only the premium counts, not the whole overtime check

This is the part most people get wrong, and it changes the answer by a factor of three. The statute defines qualified overtime compensation as overtime pay required under section 7 of the Fair Labor Standards Act "that is in excess of the regular rate" you are employed at. If your regular rate is $25 an hour, an overtime hour pays $37.50: the first $25 is straight time, taxed like any other hour, and only the extra $12.50 is deductible.

The IRS puts the same limit on richer overtime deals. Where an employer pays double time, the agency's guidance says "only the one-half portion that is relied upon to comply with the FLSA requirement is qualified overtime compensation." The half above straight time is the deductible piece. Anything an employer pays beyond what the FLSA requires, whether by contract, union agreement, or state law, is ordinary wages for this purpose.

Two limits, applied in order

First the cap. A year's qualified premium is cut down to $12,500 per return, or $25,000 if you are married filing jointly. This is one of the few places in the law where the joint figure really is double the single one.

Then the phase-out. The capped amount drops by $100 for every full $1,000 of modified adjusted gross income above $150,000, or $300,000 on a joint return. Two details matter. The reduction counts completed thousands only, so a partial $1,000 over the line costs nothing until it is a whole one. And MAGI here is your adjusted gross income increased by income excluded under sections 911, 931, and 933, which for most wage earners is simply AGI. Run the arithmetic out and the deduction reaches zero at $275,000 for a single filer and $550,000 on a joint return.

Neither number moves with inflation. The caps and thresholds are fixed dollar amounts written into the statute, and the IRS's 2026 inflation adjustments do not restate them, so the deduction quietly gets smaller in real terms across its four years.

Worked example: $25 an hour, 5 overtime hours a week

A single filer earning $25 an hour works 5 overtime hours every week of the year, on top of a standard 2080-hour schedule. Overtime pays $37.50 an hour, of which $12.50 is the FLSA premium.

$25/hour, 5 overtime hours × 52 weeks, single filer

Base wages (2,080 hours): $52,000
Gross overtime pay: $9,750
Of which is FLSA premium (the deductible half): $3,250
Modified AGI, wages plus overtime: $61,750
Deduction allowed: $3,250
Federal income tax saved: $390

Computed at build time by this site's engine on the 2026 federal brackets and standard deduction. An estimate, not a filing figure.

The headline number people carry around is $9,750 of overtime pay. The number that reaches the return is $3,250, and because this filer's income sits in a lower bracket, the tax it saves is $390. Nothing here is under the cap by accident: at this rate a worker would need roughly triple the overtime hours before the cap started binding.

Worked example: a year that hits both limits

Now a single filer at $65 an hour working 8 overtime hours a week. The premium alone comes to $13,520, above the cap, and the income lands inside the phase-out band, so both limits bite in sequence.

$65/hour, 8 overtime hours × 52 weeks, single filer

Base wages (2,080 hours): $135,200
Gross overtime pay: $40,560
FLSA premium earned: $13,520
After the $12,500 cap: $12,500
Modified AGI, wages plus overtime: $175,760
Lost to the phase-out: $2,500
Deduction allowed: $10,000
Federal income tax saved: $2,400

Same engine, same 2026 tables. Modified AGI is approximated as wages plus overtime, which is exact only when there are no other adjustments to income.

Worth noticing: this worker earns $10,270 more premium than the first one and keeps a deduction of $10,000 after both limits, less than the $12,500 the cap alone would have allowed. Past the cap, extra overtime raises MAGI without adding anything deductible, so in this band each additional $1,000 of income costs another $100 of deduction.

Who can claim it

You do not have to itemize. The IRS states the deduction "is available for both itemizing and non-itemizing taxpayers", so it stacks on top of the standard deduction rather than competing with it, and it is claimed on Schedule 1-A of Form 1040.

Two conditions are absolute. You need a Social Security number valid for employment, included on the return. And if you are married, you and your spouse have to file a joint return: married filing separately is a flat zero here, at any income. Only overtime the FLSA itself required counts, which is a real limit on who qualifies and is covered in the guide on salaried workers .

What this does not cover

Payroll taxes. Publication 15 is explicit that "overtime compensation is still generally subject to both the employer share and employee share of social security tax and Medicare tax." The deduction touches federal income tax only.
State income tax. This is a federal deduction. States write their own rules, and most have not matched it, so state tax generally still falls on the full overtime wage. Check your state's page for its treatment.
Your withholding. A deduction claimed on a return is not the same thing as a bigger paycheck in January. See refund or paycheck for what the IRS has actually said about 2026 withholding.
Exact figures. Every number above is a planning estimate on published 2026 tables, computed from wages alone. Real returns carry other adjustments to income, other deductions, and credits that move both MAGI and the tax the deduction saves.