What "no tax on overtime" actually means
The 2025 tax law (the One Big Beautiful Bill Act, new section 225 of the tax code) created a deduction for qualified overtime compensation for tax years 2025 to 2028. You can deduct the premium portion of overtime required by federal law — the "half" in time and a half — not your whole overtime paycheck.
Example: you earn $24 an hour and work 300 overtime hours at $36. Your overtime pay is $10,800, but the deductible premium is 300 × $12 = $3,600. In the 22% bracket, that saves about $792 of federal income tax.
The rules
| Tax years | 2025, 2026, 2027 and 2028 |
|---|---|
| What counts | The overtime premium required by the FLSA (usually 0.5 × your regular rate for hours over 40). Not overtime required only by state law, a union contract or employer policy. |
| Maximum deduction | $12,500 per return ($25,000 married filing jointly) |
| Income phase-out | Reduced by $100 for each $1,000 of MAGI over $150,000 ($300,000 joint) |
| Who can claim | Workers with a valid SSN; married couples must file jointly |
| Itemizing | Not required — claimed on Schedule 1-A of Form 1040 |
| What it does not reduce | Social Security, Medicare and (usually) state income tax |
Maximum deduction by income (single filers)
| Modified AGI | Maximum deduction |
|---|---|
| $150,000 | $12,500 |
| $175,000 | $10,000 |
| $200,000 | $7,500 |
| $225,000 | $5,000 |
| $250,000 | $2,500 |
| $275,000 | $0 |
Joint filers: double the income figures and the cap ($25,000 maximum, phasing out from $300,000 to $550,000).
Shift workers, firefighters and nurses
12-hour shift workers on rotations like the 2-2-3 or Pitman often earn around 200 overtime hours a year — see your number in the shift pay calculator. Firefighters and police paid under the FLSA 7(k) work period rules count overtime over the 7(k) limit; use the firefighter overtime calculator for your hours. California workers: daily overtime that would not be owed under the federal 40-hour rule does not qualify.
How to claim it
- Find your qualified overtime: W-2 box 12 code TT (2026 onwards), a separate statement from your employer, or your pay stubs.
- Enter it on Schedule 1-A (Additional Deductions), Part III, and carry the total to Form 1040.
- Keep your pay stubs in case the IRS asks how the figure was worked out.
Frequently asked questions
Is overtime really tax free now?
Not entirely. For tax years 2025 through 2028, you can deduct the premium part of qualifying overtime — the extra half in time and a half — up to $12,500 a year ($25,000 for married couples filing jointly). The base pay for those hours is still taxed, and Social Security, Medicare and state taxes still apply.
What overtime qualifies?
Only overtime required by the Fair Labor Standards Act — generally pay at 1.5× for hours over 40 in a workweek (or over the 7(k) limit for firefighters and police). Overtime required only by state law (such as California daily overtime), a union contract or employer policy does not qualify.
How much is the deduction worth?
It lowers your taxable income, so the saving is the deduction times your tax bracket. A $3,600 deduction in the 22% bracket saves about $792 in federal income tax.
Where do I find my qualified overtime?
Starting with 2026 W-2 forms, employers report it in box 12 with code TT. For 2025, employers could report it separately or you could estimate it — for example one-third of overtime pay at time and a half.
Do I need to itemize?
No. You claim it on Schedule 1-A of Form 1040 whether you take the standard deduction or itemize. You need a valid Social Security number.
Can married couples filing separately claim it?
No. Married taxpayers must file a joint return to claim the deduction.
When does the income phase-out start?
At $150,000 of modified adjusted gross income ($300,000 for joint filers). The maximum deduction drops by $100 for each $1,000 over that, reaching zero at $275,000 ($550,000 joint).
This is an estimate, not tax advice. Rules and IRS guidance can change — check IRS Schedule 1-A guidance or a tax professional before filing.