The new "no tax on overtime" rule is a federal income tax deduction, not a payroll-tax exemption, and it only covers the premium part of your overtime pay. Enter your numbers below to estimate your federal income tax savings, using the caps and phaseout the statute actually sets.
Federal income tax estimate only. Not tax advice.
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Search interest in "no tax on overtime" spiked after the One Big Beautiful Bill Act created a new federal income tax deduction for overtime pay, but the rule is narrower than the headline suggests. It is not a blanket exemption from tax on overtime: it is a capped deduction for the premium portion of your overtime wages, it phases out at higher incomes, and it applies to federal income tax only. This calculator walks your numbers through the same cap and phaseout the statute sets, so you can see an honest estimate instead of a headline.
How this number is calculated
First, we figure your "qualified overtime compensation," which the law defines as only the premium part of your overtime pay, the amount above your regular hourly rate, not your full time-and-a-half wage. If you were paid the standard time-and-a-half rate and enter your total overtime pay, we divide it by three to get that premium (since the "half" is one-third of "one-and-a-half"). If you already know your premium-only figure, check the box and we use your number directly. Next, we cap that amount at $12,500 if you file single, or $25,000 if you file jointly. Then we apply the income-based phaseout: for every $1,000 your MAGI is over $150,000 (single) or $300,000 (joint), the capped amount is reduced by $100, down to zero. What is left is your eligible deduction, and we multiply it by your marginal federal bracket to estimate the income tax you save.
Why only "half" of your overtime pay counts
The statute (new Internal Revenue Code section 225, added by the One Big Beautiful Bill Act) defines "qualified overtime compensation" as overtime pay required under section 7 of the Fair Labor Standards Act "that is in excess of the regular rate" you are employed at. Under the standard FLSA time-and-a-half rule, your overtime rate is 1.5 times your regular rate; the "excess" over your regular rate is the extra 0.5, or one-third of what you were actually paid for those hours. That one-third premium is what the deduction is built around, not your entire overtime paycheck.
How the income phaseout works
The deduction is not available in full to every income level. Once your modified adjusted gross income (MAGI) passes $150,000 (single) or $300,000 (married filing jointly), the statute reduces your capped deduction by $100 for every $1,000 your MAGI is over that threshold. This calculator applies that as a continuous 10% reduction rate on the excess MAGI, since the statute states the $100-per-$1,000 rate but does not specify how a partial $1,000 is rounded; treat the phaseout figure as a close estimate, not a penny-exact one, near the edges of a $1,000 bracket.
What this deduction does not do
This is a federal income tax deduction only. The law that creates it amends subchapter B of the income tax code; it does not touch chapter 21, the Federal Insurance Contributions Act (FICA) rules that fund Social Security and Medicare. We found no language in the statute or in the IRS's own published overtime-deduction guidance exempting overtime pay from Social Security or Medicare withholding, so this calculator assumes payroll tax is still owed on your full overtime pay, unless and until the IRS says otherwise. This deduction also does not apply to state income tax (each state decides its own conformity), does not change how much is withheld from your paycheck during the year unless your employer updates its withholding tables, and is not itself a refund amount; it lowers your taxable income, and what that is worth to you depends on your full tax return.
What years this applies to
Per the statute's own effective-date and termination clauses, the deduction applies to taxable years beginning after December 31, 2024, and no deduction is allowed for any taxable year beginning after December 31, 2028. In plain terms: tax years 2025 through 2028, unless Congress changes the law before then.
Methodology and sources
Qualified overtime compensation is estimated as: if you already know your premium-only figure, we use it directly; otherwise, total overtime pay entered ÷ 3, which isolates the "extra half" premium from a standard time-and-a-half overtime wage. That figure is capped at $12,500 (single) or $25,000 (joint). The capped amount is then reduced by 10% of the amount your MAGI exceeds $150,000 (single) or $300,000 (joint), floored at zero, modeling the statute's "$100 for each $1,000 over the threshold" phaseout as a continuous rate. The result is the eligible deduction, multiplied by your selected marginal federal bracket to estimate the federal income tax saved. Every figure is an estimate of federal income tax only.
It is a new federal income tax deduction, created by the One Big Beautiful Bill Act and codified as Internal Revenue Code section 225, for the premium portion of overtime pay required under the Fair Labor Standards Act. It applies to taxable years beginning after December 31, 2024, and is scheduled to end for taxable years beginning after December 31, 2028, per the statute's own termination clause.
Only part of it. The statute defines qualified overtime compensation as the amount paid "in excess of the regular rate" at which you are employed under FLSA section 7, meaning the extra premium on top of your straight-time rate, not your full time-and-a-half wage. At the standard time-and-a-half overtime rate, that premium is one-third of your total overtime pay.
Up to $12,500 a year if you file single, or $25,000 if you file a joint return. Above a modified adjusted gross income of $150,000 single or $300,000 joint, the deduction is reduced by $100 for every $1,000 your MAGI is over that threshold, until it reaches zero.
No. This is a federal income tax deduction only. The statute that creates it amends the federal income tax rules in subchapter B of the tax code; it does not amend the payroll tax provisions in chapter 21 that impose Social Security and Medicare tax. Nothing in the statute exempts overtime pay from FICA withholding, so we treat payroll tax as still owed unless and until the IRS states otherwise.
No. It estimates the federal income tax you may save at your marginal bracket, from this one deduction, before considering your withholding, other deductions and credits, state tax, or payroll tax. Your actual refund or balance due depends on your full return. This is not tax advice.
Disclaimer. FigureNerd calculators are educational tools designed to support your decision-making. We are not licensed CPAs, attorneys, or financial planners. Results are directional and may help prompt consultation with a qualified professional. Tax, legal, and financial outcomes depend on individual circumstances. This calculator estimates a federal income tax deduction and the federal income tax it may save at your marginal bracket; it does not calculate payroll (FICA/Social Security/Medicare) tax, state income tax, paycheck withholding, or your total refund. Consult a qualified tax professional or the IRS's own guidance for your specific situation.