No Tax on Overtime Deduction 2026
Deduct the time-and-a-half premium portion of your overtime pay — up to $12,500 single or $25,000 married filing jointly.
Quick answer
Only the Fair Labor Standards Act premium — the half of time-and-a-half — is deductible, not the whole overtime cheque. The cap is $12,500, or $25,000 on a joint return, for tax years 2025 through 2028. It falls by $100 for every $1,000 of modified AGI above $150,000, or $300,000 jointly, reaching zero at $275,000 and $550,000. Married taxpayers must file jointly, and Social Security and Medicare tax still apply.
Schedule 1-A, Part III · IRC § 225 · OBBBA Pub. L. 119-21 · IRS — Schedule 1-A (Form 1040), Additional Deductions · Figures verified · How these figures are calculated
Estimate your overtime deduction
Only part of your overtime is deductible
The statute reaches the overtime compensation required by section 7 of the Fair Labor Standards Act that exceeds your regular rate— the “half” of time-and-a-half, not the whole one-and-a-half. Here is an employee paid $30 an hour who works 200 overtime hours in the year.
Double time does not double it. The FLSA requires one half the regular rate whatever your contract pays, so the same employee on double time is paid $12,000 and still has only $3,000 of qualified premium. The extra $3,000 is taxed normally.
- The straight-time half of time-and-a-half — the part paid at your regular rate is ordinary wages.
- Daily overtime required by state law but not by the FLSA, such as California's over-8-hours-in-a-day rule.
- Premiums above the FLSA minimum: the extra in double time, and weekend, holiday or shift differentials.
- Contractual or collectively bargained overtime that the FLSA does not itself require.
- Standby, on-call and callback pay.
- Salaried employees who meet an executive, administrative, professional, outside-sales or computer-employee exemption.
- Independent contractors, who have no FLSA overtime right at all.
- Most agricultural workers, and certain seasonal and recreational-establishment employees.
- Railroad and airline employees under the Railway Labor Act, and many interstate drivers under the Motor Carrier Act exemption.
- State and local government employees who take compensatory time off instead of overtime pay.
Social Security and Medicare tax apply to the whole overtime cheque, premium included. This deduction reduces federal income tax only.
What the phase-out actually does
A single filer claiming the full $12,500 of qualified FLSA overtime premium — not the whole overtime cheque. Every row is produced by the same calculation the estimator above uses, at a 22% marginal rate.
| Modified AGI | Qualified premium | Before phase-out | Phase-out | Deduction | Tax saved |
|---|---|---|---|---|---|
| $149,999$1 below the phase-out start — still the full amount | $12,500 | $12,500 | — | $12,500 | $2,750 |
| $150,000Exactly at the phase-out start — still the full amount | $12,500 | $12,500 | — | $12,500 | $2,750 |
| $181,250Inside the phase-out range | $12,500 | $12,500 | − $3,100 | $9,400 | $2,068 |
| $212,500Inside the phase-out range | $12,500 | $12,500 | − $6,200 | $6,300 | $1,386 |
| $243,750Inside the phase-out range | $12,500 | $12,500 | − $9,300 | $3,200 | $704 |
| $274,999$1 before the deduction reaches zero | $12,500 | $12,500 | − $12,400 | $100 | $22 |
| $275,000The first modified AGI at which nothing is left | $12,500 | $12,500 | − $12,500 | $0 | — |
| $275,001$1 past it — there is nothing further to lose | $12,500 | $12,500 | − $12,500 | $0 | — |
The two shaded rows at the top are the ones worth noticing: the deduction is still whole at the threshold, so reaching it costs nothing. The rows at the bottom show where it finally runs out.
What the overtime deduction means in plain English
The One Big Beautiful Bill Act lets workers deduct qualified overtime pay for tax years 2025 through 2028 under current federal law. The deduction applies to the premium portion of overtime — the extra 'half' in time-and-a-half required under the Fair Labor Standards Act (FLSA) for hours worked over 40 in a week.
Importantly, only the premium counts, not your entire overtime paycheck. If your regular rate is $20/hour and overtime pays $30/hour, only the extra $10/hour qualifies. The deduction is capped at $12,500 for single filers and $25,000 for married couples filing jointly.
Like the other Schedule 1-A deductions, it is claimed on Schedule 1-A and flows to Form 1040, works alongside the standard deduction, reduces income tax only, and phases out at higher incomes. Your employer should separately report the qualifying overtime premium.
Guides & tools for the overtime deduction
Who qualifies
- You received FLSA-required overtime for hours worked beyond 40 in a workweek.
- Your employer separately reports the overtime premium portion (W-2 or a qualifying payroll statement).
- Your MAGI is below the phase-out ceiling for your filing status.
- You have a valid Social Security number and, if married, generally file jointly.
Common mistakes to avoid
- Entering total overtime wages instead of just the premium (the extra 0.5×) — only the premium is deductible.
- Treating bonuses, shift differentials, or contractual overtime above FLSA rules as qualifying.
- Counting 'overtime' that isn't FLSA-required, such as hours under 40 paid at a higher rate.
- Ignoring the MAGI phase-out, which reduces the deduction $100 per $1,000 over the threshold.
Overtime Deduction FAQs
How much overtime can I deduct in 2026?
You can deduct the FLSA overtime premium up to $12,500 if single and $25,000 if married filing jointly for 2026. Only the premium portion — the extra half-time pay for hours over 40 per week — qualifies, not your full overtime wages. The deduction phases out above $150,000 MAGI (single) / $300,000 (MFJ). Verify with IRS Schedule 1-A instructions.
What part of my overtime pay actually qualifies?
Only the premium — the additional 0.5× of your regular rate that makes overtime 'time-and-a-half.' If you earn $20/hour normally and $30/hour in overtime, the qualifying premium is $10 for each overtime hour. Your employer should report this premium separately.
Do bonuses or shift differentials count as overtime?
No. Bonuses, shift differentials, and any overtime not required by the FLSA generally do not qualify. The deduction is limited to the FLSA-mandated overtime premium for hours worked beyond 40 in a workweek.
Can I claim both the overtime and tips deductions?
Yes. The overtime and tips deductions are separate Schedule 1-A line items with their own caps. If you have both qualifying tips and qualifying overtime premium, you can claim each up to its own limit, subject to the income phase-outs.
IRS sources & verification
Last verified August 8, 2026.