No tax on overtime: how the deduction works
From 2025 to 2028 you can deduct the extra half of time-and-a-half pay, up to $12,500 a year ($25,000 joint). It cuts federal income tax only.
By the Sproutcalc team · Figures last checked · How we calculate
Short answer: only the premium part of overtime counts. If you earn $24 an hour and work 10 hours of overtime at $36, the deductible part is $12 an hour, or $120. Social Security, Medicare and state tax still apply.
Work out your number
Hourly rate, overtime hours and income. Takes a minute.
What counts as qualified overtime
Overtime that the Fair Labor Standards Act requires, paid above your regular rate. In practice that's the "half" in time-and-a-half for hours over 40 in a workweek.
- Extra pay for weekends or holidays doesn't count if you didn't work more than 40 hours that week.
- Overtime paid above what the FLSA requires, for example double time from a union contract or state law, doesn't count beyond the FLSA premium.
- Tips are never qualified overtime.
The limits
The deduction is capped at $12,500, or $25,000 on a joint return. Above $150,000 of modified AGI ($300,000 joint), it falls by $100 for every $1,000 over.
Where the number comes from
For 2025, W-2s didn't show overtime separately, so the IRS let workers use pay stubs and other reasonable records. From tax year 2026, employers report it in box 12 with code TT. The IRS says you can't claim more than code TT shows, so ask for a corrected W-2c if it's wrong.
How to claim it
On Schedule 1-A, Part III, filed with Form 1040. You need a Social Security number valid for work, and married couples must file jointly.
Questions people ask
I'm salaried. Do I qualify?
Only if you're non-exempt under the FLSA and paid overtime because of it. Most salaried exempt staff don't get FLSA overtime, so they don't qualify.
Does this lower my Social Security tax?
No. It's a federal income tax deduction only.
Is it available if I take the standard deduction?
Yes. It works with the standard deduction or itemizing.