No Tax on Overtime Calculator
Estimate your No Tax on Overtime deduction for tax years 2025-2028, created by the OBBB Act. Workers can deduct up to $25,000 of qualifying overtime from federal taxable income — but FICA still applies.
⚠️ Important: This deduction reduces FEDERAL INCOME TAX only. Social Security (6.2%) and Medicare (1.45%) are still withheld on all overtime pay. State income tax also typically still applies.
How No Tax on Overtime works
Created by the One Big Beautiful Bill Act (OBBB) of 2025, this deduction:
- Excludes up to $25,000 of qualifying overtime pay from federal taxable income per year
- Effective for tax years 2025 through 2028
- Applies to FLSA-defined overtime (1.5x or 2x premium pay for hours over 40/week, or daily OT under state law)
- Phases out for high earners (MAGI above $250K single / $500K joint)
- Reduces FEDERAL INCOME TAX only — FICA (Social Security + Medicare) still applies
- State income tax follows state-by-state rules — most still tax overtime
Tax savings at common scenarios
| Annual OT | 12% bracket | 22% bracket | 24% bracket | 32% bracket |
|---|---|---|---|---|
| $5,000 | $600 | $1,100 | $1,200 | $1,600 |
| $10,000 | $1,200 | $2,200 | $2,400 | $3,200 |
| $15,000 | $1,800 | $3,300 | $3,600 | $4,800 |
| $20,000 | $2,400 | $4,400 | $4,800 | $6,400 |
| $25,000+ (cap) | $3,000 | $5,500 | $6,000 | $8,000 |
Federal income tax savings only. FICA (7.65%) still owed on all OT income. State income tax may still apply.
FAQs
What is 'No Tax on Overtime'?
A 2025-2028 federal income tax deduction created by the One Big Beautiful Bill Act (OBBB). Workers earning overtime can deduct up to $25,000 of qualifying overtime pay from their federal taxable income. Reduces federal income tax owed but doesn't change FICA, state tax, or Medicare withholding.
Who qualifies for No Tax on Overtime?
Workers who are: (1) Non-exempt under federal FLSA (entitled to overtime), (2) Receive qualifying overtime compensation (1.5x or 2x straight pay for hours over 40/week), (3) Have wages reported on W-2 with overtime in Box 12 or separate identification, (4) Single filers earning under $250,000 MAGI (phase-out begins). Exempt employees (salaried managers, professionals) don't qualify.
Is FICA still owed on overtime?
Yes. No Tax on Overtime only exempts FEDERAL INCOME TAX. FICA (Social Security 6.2% + Medicare 1.45%) is still owed on all wages including overtime. State income tax also still applies in most states (some may opt to follow federal rules).
How does this work on my paycheck?
Employers should reduce federal income tax withholding on qualifying overtime via updated 2025-2028 W-4 instructions. If you didn't update your W-4, you'll get the deduction at tax filing time (refund). For accurate paychecks, file an updated W-4 with your employer reflecting expected qualifying overtime.
Is the $25,000 limit per year or per check?
Per tax year. You can claim up to $25,000 in cumulative overtime exclusion in a single tax year, regardless of how many paychecks. Married filing jointly: each spouse can claim up to $25,000 separately if both earn qualifying overtime.
Does the deduction apply to all overtime?
Only 'qualifying overtime' as defined by FLSA — which is 1.5x time over 40 hours per week (or daily OT under state law like California). Holiday pay premiums, shift differentials, and on-call pay are NOT qualifying overtime. Working overtime over 8 hours/day in CA: qualifies for federal deduction since it's CA-required FLSA OT.
When does the No Tax on Overtime deduction end?
Tax years 2025 through 2028 (four years). Unless extended by Congress, the deduction sunsets at the end of 2028. Workers should maximize OT during these years if the financial trade-off makes sense for their situation.