How the no tax on overtime deduction works.

It's a deduction, your overtime is not "tax-free."

Between 2025 and 2028, you can deduct part of your overtime pay from your federal taxable income. Three things that surprise people:

• •Your paycheck doesn't change by default. Withholding works like before; the benefit arrives when you file (or after you update your W-4 from 2026 on).
• •FICA still applies. Social Security and Medicare (7.65%) come out of every overtime dollar regardless.
• •Most states still tax it. The deduction sits below AGI, so most state returns never see it, check your state.

Who qualifies.

• ✓You're a W-2 employee covered by the Fair Labor Standards Act and non-exempt (entitled to overtime).
• ✓You received overtime required by federal law, over 40 hours in a workweek (or the special federal schedules for police, fire, and hospitals).
• ✓You have a valid Social Security number, and if married, you file jointly.

Not covered: exempt salaried employees (no FLSA overtime exists for them), independent contractors, and (for their overtime) workers whose overtime comes only from state law or a contract rather than the FLSA.

Only the premium counts: the "half" in time-and-a-half.

An overtime hour has two slices. Say you earn $20/hour and your overtime rate is $30/hour:

Only that $10 premium slice is "qualified overtime compensation" under IRC §225(c)(1), the pay required by FLSA §7 in excess of your regular rate. That's why the quick math from a pay stub is:

One subtlety: your FLSA "regular rate" isn't just your base wage, nondiscretionary bonuses and shift differentials increase it, which increases the premium you were owed and can increase your deduction. See the FAQ below.

Finding your 2025 number, the IRS-approved methods.

2025 W-2s were not required to show qualified overtime (that starts with 2026 W-2s and box 12 code TT). For 2025 returns, IRS Notice 2025-69 blesses these approaches, you can even use different methods for different employers:

Keep the pay stubs or statements you relied on; standard recordkeeping rules (§6001) apply.

Then the cap and the income phase-out.

Once you have the qualified premium: cap it at $12,500 ($25,000 joint), then reduce it by $100 for each full $1,000 your MAGI exceeds $150,000 ($300,000 joint). The rounding is taxpayer-favorable, the official Schedule 1-A instruction literally says to round down ("decrease 1.5 to 1"). Full walkthrough with your own numbers: the calculator shows every line.

Police, firefighters, nurses, and comp time: special schedules count.

FLSA §7 isn't only the over-40 rule. Overtime required under its special provisions also qualifies: police and fire on 207(k) work periods (the IRS example: $15,000 of work-period overtime → $5,000 qualified), hospital and residential-care staff on 8-and-80 agreements (207(j)), and public-sector comp time when cashed out as wages (207(o)) - counted in the year paid.

What never qualifies.

• ✕The 1.0× base slice of every overtime hour, always taxable.
• ✕State-only overtime: California daily OT in an under-40 week, 7th-day premiums, farm or live-in schedules beyond the FLSA, California guide.
• ✕Contract or union overtime beyond what federal law requires, and everything above 1.5× in double-time.
• ✕Overtime of FLSA-exempt workers, including railroad employees and other §13(b)-exempt categories, whose overtime isn't FLSA-required.
• ✕Tips, they have their own separate deduction (up to $25,000), and the same dollars can't be both.

The clock: 2025 through 2028.

The deduction applies to tax years beginning after December 31, 2024 and ends after 2028 unless Congress extends it. It was signed July 4, 2025 and applied retroactively to January 1, 2025, which is why 2025 had the transition-year quirks above. We track changes on the updates page.

Questions people actually ask.