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Tax years 2025 to 2028 · last checked Oct 22, 2026
No tax on overtime deduction: who it covers, limits and how to claim it
Deduct the extra "half" of time-and-a-half overtime pay, up to $12,500 ($25,000 joint).
Check the rules for your situation
Answer a few quick questions to see which official rules may apply and an estimated deduction range.
Open the no tax on overtime checkerKey figures
| Maximum deduction | $12,500 ($25,000 on a joint return) |
|---|---|
| What counts | Only the premium part the FLSA requires (the "half" in time-and-a-half) |
| Phase-out starts | Modified AGI over $150,000 ($300,000 joint) |
| Phase-out rate | $100 less for each full $1,000 over the limit |
| Tax years | 2025, 2026, 2027 and 2028 |
| Married couples | Must file a joint return |
| Who reports it | Form 1040, Schedule 1-A, Part III |
Who it covers
The deduction is for workers who get qualified overtime compensation: overtime pay the federal Fair Labor Standards Act (FLSA) requires, usually for hours over 40 in a workweek.
Only the part of overtime pay above your regular rate counts. If you earn time-and-a-half, the IRS says only the "half" part is deductible. If your regular rate is $20 an hour and overtime pays $30, $10 of each overtime hour counts.
Some overtime does not count:
- Overtime paid only because of a state law, a union contract, or company policy, and not required by the FLSA.
- Overtime for workers who are "exempt" from FLSA overtime, such as many salaried managers and professionals.
You also need a Social Security number valid for work, and married people must file jointly.
Caps and income phase-outs
The cap is $12,500 a year, or $25,000 on a joint return.
The deduction shrinks once modified AGI goes over $150,000 ($300,000 joint). For each full $1,000 over the limit, it drops by $100.
Example: you earned $9,000 of total overtime pay at time-and-a-half. The extra half is one third of that, $3,000. With MAGI under $150,000, the estimated deduction is $3,000.
How to claim it
You claim it on Schedule 1-A, Part III. It works whether you itemize or not.
For 2026 returns, the new Form W-2 reports qualified overtime in box 12 with code TT. For 2025, most W-2s did not show it separately, so the IRS said to use pay stubs and the Schedule 1-A instructions to figure the amount.
Keep pay stubs or payroll summaries that show overtime hours and pay, from every job you had during the year.
This deduction lowers your federal income tax. Overtime is still subject to Social Security and Medicare tax.
Common questions
Is all my overtime pay tax free?
No. Only the extra part above your regular rate counts, like the "half" in time-and-a-half, and only overtime the FLSA requires. The rest of your overtime pay is still taxed normally.
What is the overtime deduction limit?
$12,500 per year, or $25,000 on a joint return. It shrinks by $100 for each full $1,000 of modified AGI over $150,000 ($300,000 joint).
Where do I find my qualified overtime on my W-2?
On 2026 W-2s, look in box 12 for code TT. For 2025, most employers did not report it separately, so you may need pay stubs to figure it.
Does double time count?
Only the overtime premium the FLSA requires counts. Extra pay beyond what the FLSA requires, such as premiums set by a contract or state law, does not.
I am a salaried manager. Can I claim it?
If you are exempt from FLSA overtime, you generally have no qualified overtime for this deduction. Ask your employer whether your job is classified as exempt or non-exempt.
Can I claim it if I file married filing separately?
No. Married taxpayers must file a joint return to claim this deduction.
Does it lower Social Security tax?
No. It only lowers federal income tax.