What is the federal 'No Tax on Overtime' law?

Enacted under the One Big Beautiful Bill Act, the federal provision allows eligible wage employees to claim an above-the-line federal income tax deduction on qualified overtime compensation earned between tax years 2025 and 2028.

Is all of my overtime pay completely tax-free?

No. Despite the campaign title 'No Tax on Overtime', the statutory provision operates strictly as a federal income tax deduction up to annual caps ($12,500 Single / $25,000 Joint). Standard FICA payroll taxes (6.2% Social Security and 1.45% Medicare) and State income taxes still apply in full.

Which portion of overtime pay qualifies for the deduction?

Only the FLSA overtime 'premium' pay qualifies—which represents the extra 0.5× compensation in standard 1.5× time-and-a-half wages. Your base hourly wage earned during overtime hours remains subject to standard federal brackets.

What are the income phase-out thresholds?

The statutory deduction begins to phase out when your Modified Adjusted Gross Income (MAGI) exceeds $150,000 for Single and Head of Household filers, or $300,000 for Married couples filing jointly.

🏛️ One Big Beautiful Bill Act Statutory Tool

No Tax on Overtime Calculator

Calculate your projected federal income tax savings on qualified FLSA time-and-a-half premium compensation. Project statutory deduction limits ($12,500 Single / $25,000 Joint) alongside MAGI phaseout thresholds.

Overtime & Deduction Parameters

Enter hourly wage & overtime to project federal deduction savings

One Big Beautiful Bill Act

State Withholding (Optional)

Base Hourly Wage ($)

Multiplier

Regular Hrs/Wk

Overtime Hrs/Wk

Pay Frequency Breakdown

Federal Filing Status

Dependents (CTC)

Pre-Tax Wealth Maximizers

401(k) / Traditional IRA

Mode

Pre-Tax Medical / Insurance ($ per check)

Tax Deduction Analysis

Estimated federal tax savings vs standard withholding

Estimated Federal Tax Savings (Weekly)● New Law Tax Exemption

+$0.00

OT Premium Earned$0.00

Deductible Cap$0.00

New Net Take-Home$0.00

Regular Pay (Base Hours)$0.00

+ Qualifying FLSA Overtime Premium+$0.00

Total Gross Earnings$0.00

Pre-Tax Benefits (401k, Health)-$0.00

New Federal Income Tax (After Exemption)-$0.00

Social Security (6.2% FICA - No Exemption)-$0.00

Medicare (1.45%+ FICA - No Exemption)-$0.00

State Income Tax (No Exemption)-$0.00

⚠️ Verify with a Tax Professional: This tool reflects statutory provisions under the newly enacted federal No Tax on Overtime law (One Big Beautiful Bill Act). Note that the exemption applies exclusively to federal income taxes up to statutory caps ($12,500 Single / $25,000 Joint). Social Security, Medicare, and State payroll withholdings still apply in full.

✓

🛡️ IRS Pub 15-T AuditedTax Year 2026 Verified

Reviewed & Tax-Verified by Sarah Jenkins, CPA— Chief Tax Architect

Paycheck withholding formulas, FICA thresholds, and statutory Federal Overtime Exemption Act tax rates are independently reviewed for penny-perfect accuracy against IRS Publication 15-T and official state revenue department withholding tables. Learn more on our Editorial & Methodology page.

Understanding the Statutory Deduction Cap & Exclusions

The newly passed federal tax legislation changes how overtime compensation is treated on annual federal tax returns (Forms 1040). However, because payroll processors continue standard withholding rules, understanding how to verify your qualifying premium is essential.

FLSA Premium Only

If your base wage is $30/hr and you earn $45/hr on overtime, only the $15/hr premium qualifies for the exemption.

Annual Statutory Caps

Individual filers can exempt up to $12,500 of qualifying premium per year ($25,000 for married couples filing jointly).

FICA & State Taxes Still Apply

Social Security (6.2%), Medicare (1.45%), and localized state income withholdings are not exempt under this federal statute.

Statutory Exemption Comparison (Base $32/hr Wage)

Compare standard tax withholding against projected tax return savings under the federal exemption cap:

Overtime Hours/Wk	Annual OT Premium	Deductible Amount	Est. Annual Federal Savings	Status
5 hrs/wk	$4,160	$4,160	+$915.20	Fully Exempt
10 hrs/wk	$8,320	$8,320	+$1,830.40	Fully Exempt
15 hrs/wk	$12,480	$12,480	+$2,745.60	Fully Exempt
20 hrs/wk	$16,640	$12,500 (Cap)	+$2,750.00	Capped ($12.5k)

* Estimates assume Single filer taking standard deduction in 22% federal marginal bracket.

⏱️ Standard Overtime Calc 🌟 50-State Paycheck Hub →