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Salary & Taxes
No Tax on Overtime Calculator — 2025 OBBBA Deduction & Tax Saved
How the 2025 OBBBA overtime deduction works: only the time-and-a-half premium is deductible, with caps and phase-outs
The 2025 One Big Beautiful Bill Act (OBBBA) created a temporary "No Tax on Overtime" deduction that lets workers write off part of their overtime pay from federal income tax for tax years 2025 through 2028. The name oversells it, and that's exactly where people get confused. It does not make your overtime tax-free, and it does not touch Social Security or Medicare (FICA) taxes. What it actually does is let you deduct the "premium" half of time-and-a-half overtime — the extra money you earn above your regular hourly rate.
Here's the key idea. Under the Fair Labor Standards Act, overtime is usually paid at 1.5× your regular rate. If you make $30/hour, your overtime rate is $45/hour. That $45 splits into two parts: the $30 base (your normal rate, still fully taxable) and the $15 premium (the extra half). Only that $15 premium counts for the deduction.
The formula: Qualifying premium per hour = regular rate × (multiplier − 1). For 1.5× overtime that's simply half your regular rate per overtime hour. Total deductible premium = regular rate × (multiplier − 1) × overtime hours, capped at the annual limit.
Worked example. You earn $30/hour and work 100 overtime hours this year at 1.5×. Premium per hour = $30 × (1.5 − 1) = $15. Total qualifying premium = $15 × 100 = $1,500. If your marginal federal tax rate is 22%, your estimated federal tax saved is $1,500 × 0.22 = $330. That $330 is your take-home boost — money you keep that you'd otherwise have owed the IRS.
There are real limits. The deduction is capped at $12,500 per year for single filers and $25,000 for joint filers, and it phases out at higher incomes — starting around $150,000 MAGI (single) and $300,000 (joint), reduced by $100 for every $1,000 over the threshold. It's an above-the-line deduction, so you can claim it even if you take the standard deduction, but your employer still withholds FICA on the full overtime amount — the benefit shows up when you file, not in every paycheck.
The most common mistake: assuming all your overtime pay is deductible. It isn't — only the premium portion (for 1.5× pay, that's one-third of the overtime check, or half of your base rate per OT hour). The base-rate portion of overtime stays fully taxable.
This tool provides informational estimates only, not tax advice; caps, phase-out thresholds and IRS guidance can change, so confirm your numbers with a tax professional or the latest IRS instructions before filing.
Calculator
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📰 Formula
• Overtime rate = regular rate × multiplier • Premium per OT hour = regular rate × (multiplier − 1) • Total qualifying premium = premium per hour × overtime hours • Deductible amount = min(total premium, annual cap) • Annual cap = $12,500 single / $25,000 joint (before phase-out) • Estimated federal tax saved = deductible amount × marginal federal rate • Take-home boost = estimated federal tax saved
📰 Formula
• Overtime rate = regular rate × multiplier • Premium per OT hour = regular rate × (multiplier − 1) • Total qualifying premium = premium per hour × overtime hours • Deductible amount = min(total premium, annual cap) • Annual cap = $12,500 single / $25,000 joint (before phase-out) • Estimated federal tax saved = deductible amount × marginal federal rate • Take-home boost = estimated federal tax saved
🧪 Worked examples
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⚠️ Common mistakes
- Treating all overtime pay as deductible — only the premium (half-rate) portion qualifies.
- Expecting overtime to be exempt from FICA — Social Security and Medicare still apply.
- Ignoring the annual cap ($12,500 single / $25,000 joint) and phase-out at higher incomes.
- Using your tax bracket's top number when the deduction saves at your marginal rate.
💡 Tips
- For standard 1.5× overtime, the deductible premium is exactly half your regular hourly rate per OT hour.
- Your tax savings equal the deductible premium times your marginal federal rate — not your overtime pay.
- This is an above-the-line deduction, so you can claim it even if you take the standard deduction.
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❓ Frequently asked questions
Does the No Tax on Overtime law make my overtime completely tax-free?
No. The 2025 OBBBA provision lets you deduct only the premium portion of overtime — the extra half-rate above your regular pay — from federal income tax. The base-rate portion stays taxable, and Social Security and Medicare (FICA) taxes still apply to the full amount.
How much of my overtime pay is actually deductible?
Only the premium half. For standard time-and-a-half (1.5×) overtime, that's the regular rate × 0.5 per overtime hour — which works out to one-third of your overtime check. If you earn $30/hour, $15 of each overtime hour's pay is the deductible premium.
What is the annual cap on the overtime deduction?
The deduction is capped at $12,500 per year for single filers and $25,000 for joint filers. Any qualifying premium above the cap is not deductible, and the cap phases out at higher incomes.
When does the overtime deduction phase out?
The deduction begins to phase out around $150,000 of modified adjusted gross income (MAGI) for single filers and $300,000 for joint filers, reduced by $100 for every $1,000 of income above the threshold. High earners may get a reduced deduction or none at all.
Does this deduction reduce my FICA (Social Security and Medicare) taxes?
No. The deduction applies only to federal income tax. Your employer still withholds Social Security and Medicare on the full overtime amount, including the premium portion.
Which years does the No Tax on Overtime deduction apply to?
Under the 2025 OBBBA, the deduction is temporary and applies to tax years 2025 through 2028 unless extended by Congress. Confirm current rules with the latest IRS guidance.
Do I get the overtime deduction in every paycheck?
Not directly. It's a deduction you claim when you file your return, so your paychecks still have federal income tax withheld on overtime. The benefit shows up as a smaller tax bill or a larger refund at tax time.
Can I claim the overtime deduction if I take the standard deduction?
Yes. It's an above-the-line deduction, so you can claim it whether you itemize or take the standard deduction. You will need to report qualifying overtime, typically shown on a year-end statement from your employer.
How do I calculate my federal tax savings from overtime?
Multiply your qualifying overtime premium (regular rate × (multiplier − 1) × overtime hours, capped) by your marginal federal tax rate. For example, a $1,500 premium at a 22% marginal rate saves you about $330.