No-tax-on-overtime deduction estimator

Checked on 2026-10-28. Source: 26 U.S.C. 225 (law.cornell.edu/uscode/text/26/225, read 2026-10-28): subsection (b)(1) sets the $12,500 / $25,000 (married filing jointly) cap; subsection (b)(2)(A) phases the deduction out by $100 for each $1,000 by which modified AGI exceeds $150,000 ($300,000 in the case of a joint return; every other filing status, head of household included, uses the $150,000 and $12,500 figures); the IRS draft 2026 Schedule 1-A (irs.gov/pub/irs-dft/f1040s1a--dft.pdf, a draft form created 6/16/26 and marked not for filing, read 2026-10-28), Part III, line 25, says to divide the excess by $1,000 and, if the result isn't a whole number, decrease it to the next lower whole number, so a partial $1,000 takes nothing off (Part II, line 13 applies the same rule to the tips deduction); subsection (e) requires a married individual to file a joint return to claim the deduction at all. Also see IRS Publication 15 (2026), "What's New" (fetched and read 2026-10-28: 'allows individuals ... to deduct up to $12,500 ($25,000 if married filing jointly) of qualified overtime compensation ... Qualified overtime is compensation that exceeds the regular rate of pay (such as the "half" portion of time-and-a-half compensation)'); irs.gov/newsroom/what-to-know-about-the-no-tax-on-overtime-deduction; irs.gov/newsroom/one-big-beautiful-bill-how-to-take-advantage-of-no-tax-on-tips-and-overtime.

This changes your tax return, not your paycheck. Your employer still withholds federal income tax, Social Security, and Medicare from your overtime pay exactly as before. The new deduction is claimed when you file your return, on Schedule 1-A, for tax years 2025 through 2028. This page estimates that return-level deduction; it is not a withholding calculator, and our paycheck calculator does not apply it either, since nothing changes at the paycheck.

If you are married, you can only claim this deduction on a joint return. A married person filing separately does not qualify at all, not even under the single filer's cap, so this estimator has no married-filing-separately option to pick.

What counts as "qualified overtime"

Only the extra premium, the "half" portion of time-and-a-half pay required by section 7 of the Fair Labor Standards Act, counts toward this deduction, not your full overtime wage. If you earn $30 an hour and work overtime at $45 an hour, the qualified portion is the $15 premium per hour, not the full $45. Your employer's pay stub or year-end statement should break this out; if it does not yet, ask your payroll department, since the IRS has required this reporting starting with the current tax year.

The cap and the phase-out

The deduction is capped at $12,500 for a single or head of household filer or $25,000 for a married couple filing jointly, no matter how much qualified overtime premium pay you earned. It also phases out as your modified adjusted gross income rises above $150,000 single or head of household, or $300,000 married filing jointly. A head of household uses the single figures, because the law gives the higher ones only to a joint return. Our phase-out math follows the statute itself, 26 U.S.C. 225(b)(2): the deduction shrinks by $100 for every full $1,000 your modified AGI sits above that threshold, not dollar for dollar. A partial $1,000 does not count, so $1,500 over the line takes $100 off and $999 over takes nothing off. That round-down step comes from line 25 of the IRS's draft 2026 Schedule 1-A, which is still a draft form and could change before it is final.

Employers cannot just reduce your withholding

Because this deduction lives on your return, not your paycheck, your employer cannot lower your federal withholding to account for it unless you submit an updated Form W-4 asking for extra withholding adjustment. If you expect a large deduction and would rather see the benefit throughout the year instead of as a bigger refund, talk to your payroll department about adjusting your W-4, with the help of a tax professional if the math is not obvious.