No Tax on Overtime Calculator 2026: Complete Guide to the OBBBA Deduction
The 2026 "no tax on overtime" rule is one of the most misunderstood parts of the One Big Beautiful Bill Act. This guide explains exactly how the overtime tax deduction works, who qualifies, and how to estimate your federal tax savings.
Use the calculator above to run your numbers. For a full-page experience, open the standalone calculator.
What the "No Tax on Overtime" Rule Actually Means
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, created a federal income tax deduction for overtime pay. Despite the catchy "no tax on overtime" name, it is not a full exemption. It lets qualifying W-2 employees deduct the half-time premium — the extra 0.5× above the regular rate that the FLSA requires for hours over 40 per week.
It is an above-the-line deduction (you get it whether or not you itemize) and it lowers taxable income, so the real benefit equals your deductible amount multiplied by your marginal tax rate.
How Much Can You Deduct?
The maximum deduction is $12,500 for single and head-of-household filers and $25,000 for married couples filing jointly. The deduction phases out at higher incomes: single/HOH filers between $150,000 and $275,000 of MAGI, and joint filers between $300,000 and $550,000.
The Math, With a Worked Example
Overtime Premium = Regular Rate × 0.5 × OT Hours per Week × Weeks. If you earn $25/hour and work 10 overtime hours per week for 52 weeks: $25 × 0.5 × 10 × 52 = $6,500. That is below the $12,500 cap, so it is fully deductible (under the phase-out). At a 22% marginal rate you save about $1,430 in federal income tax.
Who Qualifies — and Who Doesn't
The deduction is for W-2 employees who receive FLSA-qualifying overtime. 1099 contractors and self-employed people do not qualify, because they are not paid statutory overtime. Salaried exempt employees who don't earn overtime also miss out.
Common Mistakes
- Thinking the whole paycheck is tax-free. Only the premium half is deductible.
- Forgetting FICA. Social Security and Medicare (7.65%) still apply to every overtime dollar.
- Ignoring state taxes. Most states don't conform, so overtime stays fully taxable at the state level.
Frequently Asked Questions
Is my entire overtime paycheck tax-free under OBBBA?
No. Only the premium half is deductible for federal income tax. FICA and most state income taxes still apply.
When does the deduction expire?
It applies to tax years 2025 through 2028 only, unless Congress extends it.
Ready to run your numbers? Use the No Tax on Overtime Calculator, or compare scenarios with the Texas Paycheck Calculator and Self Employment Tax Calculator.