No Tax on Overtime Pay Tax Savings Calculator | OBBBA 2026

Only the half in time-and-a-half

An overtime hour at $30 is two different dollars to the IRS: $20 of it is your regular rate, fully taxable like any wage, and $10 is the FLSA premium, which is what the deduction covers. Enter total overtime pay into any calculator and you overstate your deduction by roughly two-thirds.

This is also why the deduction only reaches workers legally OWED overtime. Salaried employees classified as exempt under the FLSA, most managers, many office roles, have no legally mandated premium, so there is nothing to deduct, however many 60-hour weeks they work. The deduction follows the law's definition of overtime, not the clock's.

What the deduction skips: payroll tax and most paychecks

FICA still takes 7.65% of every overtime dollar, premium included; the deduction touches federal income tax only. Those 600 overtime hours still fund Dre's Social Security and Medicare record, the earnings history that sets his eventual monthly check.

The saving also does not show up in Friday's paycheck. Employers withhold on overtime like normal wages all year; the deduction lands when you file. If cash flow matters more than a spring refund, update your W-4 to reflect the expected deduction, and re-check it whenever your overtime pattern changes, because an overtime-heavy summer followed by a quiet winter can leave you under-withheld against a deduction you no longer qualify for at the size you assumed. Payroll software cannot do this for you: the W-4 worksheet line for other deductions is where the expected premium amount goes, and it takes one pay cycle to flow through.

State tax is a coin flip: states that piggyback on federal AGI pass the saving through automatically, several others have decoupled. A quick check of your state's 2026 conformity bulletin settles it.

The phase-out and the two-earner surprise

The cap erodes at $100 per $1,000 of MAGI above $150,000 single or $300,000 joint. A single filer at $200,000 has already lost $5,000 of the $12,500 cap; at $275,000 it is gone entirely.

Joint filers get the double cap but also the combined-income test, which is where nurses and power-plant operators married to high earners get squeezed: heavy overtime plus a spouse's $250,000 salary can push joint MAGI deep into the ramp, shrinking a deduction the overtime worker earned alone. Model it both ways before assuming; the calculator's filing-status toggle exists for exactly this comparison.

A 2025-2028 window, so play it straight

Like the tips deduction, this expires after tax year 2028 unless renewed. Four returns, each worth up to a few thousand dollars if your premium pay is substantial, and each one dependent on your employer reporting qualified overtime correctly on the W-2. If your 2026 W-2 arrives without the overtime breakout, chase payroll before you file, not after.

Resist the urge to engineer around it. Employers reclassifying salary into 'overtime' is exactly what the qualified-overtime definition and the FLSA hook were written to block, and the IRS matching W-2 premium reporting against hours records makes it a cheap audit flag. The deduction rewards hours you genuinely worked past 40; it is not a structure to build.

Multi-job workers get one more wrinkle: the FLSA's 40-hour clock runs separately at each employer. Thirty hours at a hospital plus twenty at a clinic is fifty hours of work and zero hours of federal overtime, so none of it generates deductible premium, while a single employer scheduling the same fifty hours owes ten hours of time-and-a-half with a deductible slice in every one. For workers choosing between picking up shifts at a second job versus extra hours at the first, the deduction genuinely tilts the answer toward the first, run both versions through the calculator and the gap is usually a few hundred dollars a year.