Calculate your federal income tax savings under the OBBBA "No Tax on Overtime" deduction. Only the half-time premium portion of FLSA overtime qualifies (not the full 1.5× pay), the deduction is capped, and phases out at higher incomes. FICA + state tax still apply. This tool shows exactly what you'll actually save.
$
Lower for seasonal work, jury duty, vacation without pay, etc.
$
Regular wages (40 hr/wk pay) + spouse income if MFJ + investment income. Determines your tax bracket and phase-out.
OBBBA Section 70202. Tax years 2025-2028. Federal income tax only — FICA + state tax still apply on the full 1.5× overtime amount.
Federal income tax saved (annual)
$0
≈ $0 / month
OT premium deduction
$0
Your marginal rate
0%
% of OT pay
0%
⚠ Your MAGI is above the phase-out threshold.
How the math works
Annual OT hours
0
Full OT pay (1.5×)
$0
Premium portion (the deductible "half")
$0
Cap (single $12.5k / MFJ $25k)
$0
After cap
$0
MAGI (other income + full OT)
$0
Phase-out reduction
−$0
Final qualified deduction
$0
What still applies on your OT pay
FICA (6.2% SS + 1.45% Medicare)
$0
State income tax (most states)
varies by state
The OBBBA deduction is federal income tax only. FICA and state income tax are NOT exempt and still come out of every overtime paycheck.
How the deduction actually works
The One Big Beautiful Bill Act (Section 70202) added an above-the-line federal income tax deduction for "qualified overtime compensation" effective tax years 2025-2028. The deduction is available whether you take the standard deduction or itemize — it sits above the AGI line.
What gets deducted is the premium portion of FLSA Section 7 overtime — the "0.5" of "1.5×", not the full 1.5×. If your regular hourly rate is $20 and overtime is $30/hr, the qualified compensation is the $10/hr premium × your overtime hours. The base $20/hr × overtime hours is just additional regular wages and isn't covered.
The four ways this is less generous than people assume
Only the premium half qualifies — not the full overtime amount. Cuts the benefit roughly in half versus naive expectations.
Annual cap at $12,500 single / $25,000 MFJ. High-OT workers (>$50/hr, full-year double shifts) hit the cap quickly.
Phase-out starts at $150k single / $300k MFJ MAGI and is fully phased out at $275k / $550k. The phase-out includes your overtime pay itself in MAGI, so high earners get squeezed twice.
FICA + state tax still apply on the full 1.5× overtime amount. You'll see "no tax on overtime" headlines but your paycheck still has Social Security, Medicare, and state withholding on every OT hour.
The One Big Beautiful Bill Act (OBBBA), signed July 2025, added an above-the-line federal income tax deduction for "qualified overtime compensation." Effective for tax years 2025-2028. It is NOT a complete exemption — only the "half" portion of time-and-a-half overtime qualifies, FICA still applies, and state income tax still applies in most states.
Why only the "half" portion?
The provision defines qualified overtime as compensation that exceeds the regular rate, as required by FLSA Section 7. If you earn $20/hr regular and $30/hr overtime (1.5×), only the $10/hr premium portion is the "overtime compensation" under the FLSA definition. The base $20 × OT hours is just your regular wages working extra time and isn't covered. This catches a lot of people off guard — the calculator above shows the math clearly.
How much can I actually deduct?
Capped at $12,500 for single filers, $25,000 for married filing jointly. Phase-out begins at MAGI of $150,000 single / $300,000 MFJ and reduces the deduction by $100 per $1,000 of excess MAGI. At MAGI of $275k single (or $550k MFJ) the deduction is fully phased out.
Does FICA still apply?
Yes. Social Security (6.2%) and Medicare (1.45%) — combined 7.65% FICA — still apply to your FULL overtime pay including the premium portion. The OBBBA deduction is income tax only. On $7,800 of annual overtime, you still owe ~$597 in FICA regardless of how much income tax you save.
What about state income tax?
Most states do NOT conform to the federal OBBBA deduction. State income tax continues to apply on the full overtime amount in most states. A few states (varies by year) may pass legislation conforming. Check your state's Department of Revenue site for the current rule. This calculator shows federal savings only.
How does my employer report this on my W-2?
Starting tax year 2026, employers are required to separately report the FLSA overtime premium portion in W-2 Box 14 labeled "FLSA OT Prem" (or via Code TT in Box 12 per certain IRS guidance — verify with payroll). For tax year 2025, the IRS provided transitional relief and employers were not penalized for not separately reporting.
I'm salaried — does this apply to me?
Only if you actually receive FLSA-required overtime pay. Most salaried employees are classified as "exempt" under the FLSA and don't receive overtime — they're not eligible for the deduction. Salaried "non-exempt" employees who do receive time-and-a-half on hours over 40/week ARE eligible. Tipped employees, certain executive/professional roles, and outside salespeople are typically exempt under FLSA.
When does this expire?
OBBBA Section 70202 expires December 31, 2028 unless extended by Congress. There is no current legislative push to extend it. Tax years 2025, 2026, 2027, and 2028 are covered. Starting 2029, overtime returns to fully taxable (subject to any future legislation).