No tax on overtime deduction calculator
"No tax on overtime" does not mean all of your overtime is tax-free. Only the extra half in time and a half is, up to a yearly limit, and it shrinks for high earners. Type your overtime for the year to see what you can deduct and roughly what it saves you.
What these words mean
- Overtime premium
- The extra part of overtime pay above your normal rate: the 'half' in time and a half.
- Time and a half (1.5x)
- Your normal hourly rate plus half again. $20 an hour becomes $30.
- Income for tax purposes (modified AGI)
- Roughly your total income after a few adjustments. It is line 11 on your tax return plus some items added back.
- Phase-out
- The point where a tax break starts shrinking as income rises, and the level where it is gone.
- Withholding
- Money your employer sends to the tax office from your pay before you get it. It is not extra tax. It is settled when you file your return.
Questions
Which overtime counts for the tax break?
Only the extra part of overtime that federal law requires: hours over 40 in a week, at time and a half. At that rate, one third of your overtime pay is the part that counts. Overtime that only your state, contract or employer requires does not count, and neither does double time.
Where do I find the number for my 2025 tax return?
Employers did not have to show it separately on 2025 W-2 forms. If yours did not, take your overtime pay for hours over 40 and divide by three. From 2026 pay onward it appears on your W-2.
Does it lower Social Security and Medicare tax too?
No. Those are still taken from every check. The break only lowers your federal income tax. State income tax depends on your state.
What is the yearly limit?
$12,500.00 for a single filer and $25,000.00 for a married couple filing together. Above $150,000.00 of income ($300,000.00 for couples) the limit shrinks by $100 for every $1,000 earned, and it is gone at $275,000 ($550,000 for couples).