No tax on overtime calculator — federal deduction estimate
Last checked against official sources: (irs.gov; irs.gov; congress.gov)
Model the IRC §225 deduction for qualified FLSA overtime premium: annual cap, MAGI phase-out, and optional federal tax savings. Federal income tax only—not payroll or state tax.
Enter your qualified overtime premium (from rate and FLSA overtime hours, or from annual reporting such as Form W-2 box 12 code TT for 2026+), filing status, and MAGI. The guide cites IRS FS-2026-13 and Schedule 1-A with a worked example.
Federal income tax deduction only (IRC §225). Overtime wages stay taxable for withholding and FICA. IRS FS-2026-13
Your numbers
Federal deduction estimate
Enter values to calculate
- Enter your modified adjusted gross income (MAGI).
- Enter your FLSA regular rate (greater than zero).
- Enter total FLSA overtime hours for the year (hours over 40 in each workweek).
- Qualified OT premium (annual)
- —
Estimates only—not tax advice. This calculator doesn't model state tax, credits, or full return math. For 2025 the IRS gave transition relief (Notice 2025-69); from 2026, qualified overtime is reported on Form W-2 box 12 code TT (FS-2026-13 Q20).
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FAQ
- What counts as qualified overtime compensation?
- It is the FLSA-required overtime premium—the “half” in time-and-a-half on hours over 40 in a workweek—not straight-time pay for OT hours and not overtime required only by state law or contract when the FLSA does not require it. See IRS FS-2026-13 and IRC §225(c).
- What is the maximum federal deduction?
- Up to $12,500 of qualified overtime compensation per return ($25,000 on a joint return), before the MAGI phase-out. IRC §225(b)(1); FS-2026-13 Q2.
- How does the MAGI phase-out work?
- If modified adjusted gross income exceeds $150,000 ($300,000 married filing jointly), the deduction is reduced by $100 for each $1,000 over that threshold (rounded down to whole thousands). Schedule 1-A (Form 1040) Part III lines 17–21; IRC §225(b)(2).
- Does this remove overtime from my paycheck taxes?
- No. Qualified overtime stays in gross income and remains subject to federal income tax withholding, Social Security, and Medicare. The deduction lowers federal income tax on your return; it is not a payroll exclusion (FS-2026-13 Q1).
- Do I need Form W-2 box 12 code TT?
- For tax years beginning after 2025, employers must report qualified overtime on Form W-2 box 12 code TT, and you generally may deduct only amounts properly reported (FS-2026-13 Q6, Q20). For 2025 the IRS gave transition relief (Notice 2025-69); see the guide for reasonable methods when box 12 code TT is not on your W-2.
- Can married taxpayers file separately?
- No. If you are married within the meaning of IRC §7703, you and your spouse must file a joint return to claim the deduction (IRC §225(e); FS-2026-13 Q25).
How this calculator works
The One, Big, Beautiful Bill Act (P.L. 119-21) added IRC §225, allowing certain workers to deduct qualified overtime compensation from federal taxable income for years beginning after December 31, 2024, with no deduction for taxable years beginning after December 31, 2028. The deduction is an income tax deduction whether you itemize or take the standard deduction; it does not remove overtime from gross income or from employment taxes.
Qualified overtime compensation is the FLSA-required premium—the “half” in time-and-a-half—not the straight-time pay for overtime hours and not overtime paid only under state law or employer policy when the FLSA does not require it. IRS FS-2026-13 and IRC §225(c) describe eligibility and limits.
Worked example
Suppose your employer paid you $10,000 of qualified overtime compensation in 2026 (reported on Form W-2 box 12, code TT), you file single, and your MAGI is $160,000. Schedule 1-A Part III caps the deduction at $12,500, so line 15 is $10,000. MAGI exceeds $150,000 by $10,000; dividing by $1,000 and rounding down gives 10 steps, so the phase-out reduction is $1,000. Estimated deductible amount: $9,000. Multiplying by a 22% marginal federal rate suggests about $1,980 of federal income tax savings—only an illustration; your actual tax depends on your full return.
| Input or result | Example |
|---|---|
| Qualified OT premium | $10,000 |
| Cap (single) | $12,500 |
| After cap | $10,000 |
| MAGI over $150,000 | $10,000 |
| Phase-out ($100 × 10) | $1,000 |
| Deduction | $9,000 |
| Illustrative tax saving at 22% | $1,980 |
Premium from rate and hours
When you do not yet have Form W-2 box 12 code TT, FS-2026-13 gives a workweek formula: FLSA overtime hours over 40 in the workweek × one-half × FLSA regular rate. Example from the fact sheet: 10 overtime hours at a $20 regular rate with no other pay in the workweek → $100 of qualified overtime compensation for that week ($10 premium × 10 hours). Double-time or other excess pay above the FLSA minimum counts only up to the required premium. For tax years beginning after 2025, only amounts on Form W-2 box 12 code TT are deductible (FS-2026-13 Q20).
Tax year 2025 transition
For 2025 the IRS gave transition relief (Notice 2025-69; FS-2026-13 Q20). Under Notice 2025-69, employers did not have to report qualified overtime separately on 2025 Forms W-2. Notice 2025-69 lists reasonable methods to estimate the FLSA overtime premium when pay stubs do not label it separately—for example, one-third of time-and-a-half overtime pay, or one-fourth of double-time overtime pay—and allows use of amounts on pay stubs or similar employer documents.
Other rules (summary)
- Annual limit: $12,500 per return ($25,000 married filing jointly). IRC §225(b)(1); FS-2026-13 Q2.
- MAGI phase-out: deduction reduced by $100 for each $1,000 MAGI over $150,000 ($300,000 joint). IRC §225(b)(2); Schedule 1-A lines 17–21.
- Valid Social Security number required; married couples must file jointly. FS-2026-13 Q24–Q25; IRC §225(d)–(e).
- For 2025 the IRS gave transition relief (Notice 2025-69); from tax years beginning after 2025, Form W-2 box 12 code TT reporting is required to claim the deduction (FS-2026-13 Q6, Q20).
- Deduction applies to federal income tax only—not Social Security or Medicare (FS-2026-13 Q1).
Official sources
- IRS Fact Sheet FS-2026-13 (qualified overtime FAQs)
- IRS news release IR-2026-88 (FAQ update)
- IRS Working Families Tax Cuts (OBBBA provisions hub)
- IRS FAQs (superseded by FS-2026-13; prior wording)
- IRS Notice 2025-69 (2025 transition and MAGI)
- Schedule 1-A (Form 1040) — cap and MAGI worksheet
- Enrolled H.R. 1 — IRC §225 (P.L. 119-21)
The U.S. Code site (uscode.house.gov) was unavailable when this page was verified; IRC §225 text is quoted in enrolled H.R. 1 at congress.gov above.
People also ask
- Which tax years does IRC §225 cover?
- The deduction applies to taxable years beginning after December 31, 2024, with no deduction for any taxable year beginning after December 31, 2028 (IRC §225(g); H.R. 1 effective-date clause).
- Is qualified overtime the same as total overtime pay?
- No. Total overtime pay includes straight-time wages for overtime hours plus the premium. Only the FLSA-required premium counts—for example, Form W-2 box 12 code TT reports total qualified overtime paid, which may exceed what you can deduct after caps (FS-2026-13 Q10, Q16; IRC §225(c)).
Totals shown here are estimates for checking a pay stub or time sheet. They are not official payroll, tax, or legal advice.
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