For 2025–2028 you can deduct the premium part of qualified overtime — the extra half of time-and-a-half required by the Fair Labor Standards Act — up to $12,500 a year ($25,000 married filing jointly). The cap shrinks by $100 per $1,000 of MAGI over $150,000 ($300,000 joint). It’s claimed on Schedule 1-A without itemizing; Social Security and Medicare still apply. At $32 an hour, 200 overtime hours saves a single filer about $704.
What counts as qualified overtime
Under the FLSA, non-exempt employees must be paid at least 1.5 times their regular rate for hours over 40 in a workweek. If you earn $32 an hour and work 45 hours, the five overtime hours pay $48 each. Of that, $32 is regular pay and $16 is the premium — only the $16 is deductible.
- Doesn’t count: overtime paid only because of state law (for example California’s daily overtime over 8 hours), a union contract or company policy, beyond what the FLSA requires; double-time beyond the FLSA half; and pay for salaried workers who are exempt from the FLSA.
- Does count: FLSA-required overtime for hourly and non-exempt salaried employees, including many nurses, police officers, firefighters (under their special FLSA rules), technicians and warehouse staff.
- Your employer reports the qualified amount on the 2026 W-2 in Box 12, code TT. You need a valid SSN, and married couples must file jointly.
How much it saves at $32 an hour
| Overtime hours | Total pay | Deductible premium | Tax saved (single) |
|---|---|---|---|
| 100 | $71,360 | $1,600 | $352 |
| 200 | $76,160 | $3,200 | $704 |
| 300 | $80,960 | $4,800 | $1,056 |
| 400 | $85,760 | $6,400 | $1,408 |
| 600 | $95,360 | $9,600 | $2,112 |
Two things stand out. First, at $32 an hour every one of these pay levels puts the last dollars in the 22% bracket, so each $1,000 of premium saves about $220 — a filer in the 12% bracket would save barely half that. Second, even 600 hours of overtime only produces a $9,600 premium, under the $12,500 single cap; you need a lot of overtime or a high hourly rate to hit it.
Example: a nurse couple with two kids
Dana is an hourly ICU nurse; her husband is salaried. Together they earn $118,000, and Dana’s W-2 shows $8,400 in Box 12 code TT. With standard W-4s, their refund would be about $4,400 (mostly the two $2,200 child credits). The overtime deduction lowers taxable income by $8,400 in the 12% bracket, so the refund grows to about $5,408.
Overtime and your paycheck
Overtime is still taxed in each paycheck; the deduction only shows up when you file. If your overtime is steady, the 2026 W-4 lets you enter expected qualified overtime in the Step 4(b) worksheet so less is withheld. If it’s irregular, leaving the W-4 alone and taking the money as a refund is the safer route. Worked salary examples: $45,000, $80,000, $150,000.
Add your overtime premiumEnter your wages, withholding, kids and any tips or overtime — the estimator applies every rule on this page.
Frequently asked questions
Is overtime tax-free in 2026?
Not entirely. You can deduct the FLSA overtime premium — the extra half of time-and-a-half — up to $12,500 ($25,000 joint) from federal taxable income. Regular-rate pay, Social Security, Medicare and usually state tax still apply.
How do I calculate my qualified overtime?
Multiply your FLSA overtime hours by half your regular rate. At $30 an hour, 150 overtime hours means a $2,250 deductible premium. Your 2026 W-2 should show the amount in Box 12, code TT.
Do salaried employees get no tax on overtime?
Only if they’re non-exempt under the FLSA and receive required overtime. Exempt salaried employees don’t receive FLSA overtime, so there’s nothing to deduct.
Does California daily overtime qualify?
Only the portion that is also required by the federal FLSA (hours over 40 in a week) qualifies. Overtime owed solely under state law doesn’t.
What is the income limit for the overtime deduction?
The cap is reduced by $100 for every $1,000 of modified AGI above $150,000 ($300,000 for joint filers).
Related tax refund guides
- No tax on tips explained (2026)Up to $25,000, who qualifies, phase-out and examples.
- How to adjust your W-4 for 2026Bigger paycheck or bigger refund — step by step.
- Standard deduction 2026: $16,100 / $32,200 / $24,150Plus the 65+ add-ons and when itemizing wins.
- When will I get my tax refund in 2027?21-day e-file rule, PATH Act hold for EITC/ACTC, and a date chart.
- Where’s My Refund? Tracking your 2027 refundWhat the three status bars mean and when to worry.
- Tax filing deadline 2027: April 15Key dates, extensions and what being late really costs.
- Why is my tax refund smaller this year?Eight common reasons, each with a dollar example.
- Tax refund on a $80,000 salaryWorked example by filing status
Sources & method
- IRS Fact Sheet FS-2025-03, “Tax deductions for working Americans and seniors” (Jul 14, 2025; updated Jul 25, 2025): tips, overtime, senior and car-loan-interest deductions, 2025–2028.
- Public Law 119-21 (One Big Beautiful Bill Act, signed Jul 4, 2025), IRC §§224, 225, 151(d)(5)(C), 163(h)(4) — phase-out rates.
- IRS Form W-2 (2026) final instructions: Box 12 code TT for qualified overtime compensation (HRMorning, Feb 2026).
- IRS Rev. Proc. 2025-32 (Oct 9, 2025): 2026 tax brackets, standard deduction ($16,100 / $32,200 / $24,150), additional 65+ amounts, EITC table, CTC $2,200 — as summarized by KPMG TaxNewsFlash and Current Federal Tax Developments (Oct 2025).
- Our refund model: one W-2 job, wages only, federal income tax only (Social Security and Medicare are never refunded), Form W-4 filled out with just the filing-status box (Pub 15-T standard tables), no pre-tax 401(k). These are estimates, not tax advice — your Form 1040 decides the real number. Parameters checked 2026-11-03.