No Tax on Overtime Calculator

The OBBBA introduces a new above-the-line deduction for overtime pay. Hourly workers who earn overtime (time-and-a-half for hours worked beyond 40 per week) can deduct that overtime income from their federal taxable income. This makes working extra hours significantly more rewarding — you keep more of every overtime dollar.

Deduction Caps

The overtime deduction is capped based on your filing status:

• Single filers: Up to $12,500 per year
• Married filing jointly: Up to $25,000 per year

If your annual overtime pay exceeds the cap, only the capped amount is deductible. The remaining overtime income is taxed normally.

Income Phaseout

The deduction phases out for single filers earning above $150,000 and married couples above $300,000. The benefit is fully eliminated $30,000 above these thresholds. Within the phaseout range, the deduction is proportionally reduced based on how far your income exceeds the threshold.

What Counts as Overtime?

Not all extra hours count as overtime for this deduction. To qualify:

• You must be an hourly (non-exempt) employee — salaried exempt employees who work beyond 40 hours do not qualify, even if they receive additional compensation
• Hours must exceed 40 per week — the standard FLSA definition of overtime applies
• Pay must be at the overtime rate — typically 1.5x your regular hourly rate. Double-time pay also qualifies.
• FICA taxes (Social Security and Medicare) still apply to overtime pay
• The deduction does not cover shift differentials, holiday pay, or bonuses that are not overtime

Worked Example: James, a Warehouse Worker

James works at a distribution center in Ohio earning $22 per hour. During busy season, he works 10 hours of overtime per week for about 40 weeks per year. He files as single with a gross income of $60,000.

• Overtime rate: $22 x 1.5 = $33/hour
• Annual overtime pay: $33 x 10 hours x 40 weeks = $13,200
• Cap: $12,500 (single) — cap is applied
• Deduction amount: $12,500
• Marginal tax rate at $60,000: 22%
• Annual tax savings: $12,500 x 22% = $2,750
• Per paycheck savings: $105.77

Before the OBBBA, James paid federal income tax on all his overtime earnings. Now, he keeps an extra $2,750 per year — enough to cover a month of rent or several car payments.

Industries That Benefit Most

Workers in the following industries tend to earn the most overtime and will see the biggest benefit from this provision:

• Manufacturing and warehousing — seasonal demand drives regular overtime
• Construction — project deadlines often require extended hours
• Healthcare — nurses, EMTs, and hospital staff regularly work overtime shifts
• Transportation and logistics — delivery drivers, dock workers
• Retail — holiday seasons and inventory periods create overtime opportunities
• Energy and utilities — maintenance crews and plant operators

Source: IRS.gov | Congress.gov — One Big Beautiful Bill Act