Overtime Tax Calculator 2026
Estimate your federal tax bill and see how the 2026 "No Tax on Overtime" deduction affects your take-home pay.
Federal Tax Breakdown (Annual)
- This is a simplified federal-only estimate. Does not include state or local taxes.
- Does not account for pre-tax deductions (401k, HSA, health insurance) or tax credits (EITC, child tax credit).
- The "No Tax on Overtime" deduction applies only to the qualified OT premium (the 0.5× portion for time-and-a-half). The base rate for OT hours is still fully taxable.
- FICA (Social Security + Medicare) applies to all gross wages including overtime — the OT deduction does NOT reduce FICA.
- Tax brackets and deduction parameters are estimates based on inflation-adjusted 2026 projections. Verify with IRS.gov.
- Consult a tax professional for accurate withholding and tax planning.
The 2026 "No Tax on Overtime" Deduction
The One Big Beautiful Bill Act (signed into law in 2025) introduced a new above-the-line deduction for qualified overtime premium pay, effective for tax years beginning in 2026.
How It Works
- What's deductible: Only the premium portion of overtime pay. For time-and-a-half (1.5×), this is the 0.5× portion. For double time (2×), the 1.0× portion.
- What's NOT deductible: The base rate portion of overtime hours. If you earn $20/hr and work 5 OT hours at $30/hr, only $50 (5 × $10 premium) is deductible, not the full $150.
- Cap: $12,500 for single filers / $25,000 for married filing jointly
- Phase-out: Deduction reduces for AGI above $150,000 (single) / $300,000 (MFJ)
- FICA still applies: Social Security and Medicare taxes are NOT reduced by this deduction
- Above-the-line: You can claim this deduction even if you take the standard deduction
Source: IRS guidance under the One Big Beautiful Bill Act (2025). Verify with IRS.gov.
Example Calculation
An employee earning $25/hr works 10 overtime hours per week:
Who Qualifies?
The deduction is available to non-exempt employees who receive overtime pay as required by the FLSA or state overtime laws. Key qualifications:
- Must be wages for hours actually worked beyond the overtime threshold
- Must be at the premium rate required by law (not voluntary employer premiums)
- AGI must be below the phase-out threshold for full benefit
- Independent contractors and exempt employees do not qualify
Frequently Asked Questions
Is overtime completely tax-free now?
No. The deduction only covers the premium portion and is capped. The base rate for OT hours is still fully taxable. FICA (Social Security + Medicare) applies to all wages. And the deduction itself is capped at $12,500/$25,000 with an AGI phase-out. High earners may see reduced or no benefit.
Does this reduce my Social Security and Medicare taxes?
No. FICA taxes (6.2% Social Security + 1.45% Medicare) are calculated on gross wages before any income tax deductions. The OT deduction only reduces your federal income tax liability.
What if I earn over the phase-out threshold?
For AGI above $150,000 (single) or $300,000 (MFJ), the deduction is gradually reduced. The specific phase-out formula reduces the deduction by a percentage of the excess AGI. At sufficiently high income, the deduction phases out completely.
Does double time get a larger deduction than time-and-a-half?
Yes, proportionally. For double time (2×), the premium is 1.0× the regular rate (twice as much as the 0.5× premium for time-and-a-half). So each double-time hour generates a larger deductible amount. Both are subject to the same annual cap.