What the law actually lets you deduct
The 2025 tax law (Public Law 119-21) added a deduction for "qualified overtime compensation" for tax years 2025 through 2028. The definition is narrow: it is the overtime pay required by section 7 of the Fair Labor Standards Act that is in excess of your regular rate. If you earn $30 an hour and $45 for an overtime hour, the deductible part is the $15 premium, not the whole $45. The other $30 is ordinary wages and is taxed as it always was. Overtime an employer pays voluntarily above what the FLSA requires, double-time under a union contract, or a salaried worker's extra pay do not qualify unless they are FLSA overtime.
The deduction is capped at $12,500 a year, or $25,000 on a joint return, and it is reduced by $100 for every $1,000 of modified adjusted gross income above $150,000 ($300,000 joint). Married couples must file jointly to claim it, and the return must show your Social Security number. It is available whether or not you itemize.
Why your paycheck did not change
Employers still withhold income tax on overtime as before, and Social Security and Medicare tax are unaffected: the deduction lowers income tax only, and only when you file. The IRS asked employers to report qualified overtime separately for 2025 so that workers can find the figure. You claim the deduction on the new Schedule 1-A with your Form 1040, and it comes off your income after adjusted gross income, so it does not change AGI-based tests such as the earned income credit.
Worked example
A single warehouse worker earns $30 an hour and worked 200 overtime hours in 2026, on total wages of $70,000. The premium is 0.5 × $30 × 200 = $3,000, under the cap, and $70,000 is well under the $150,000 threshold, so the whole $3,000 is deductible. With a $16,100 standard deduction the taxable income falls from $53,900 to $50,900. The 22% bracket starts at $50,400, so the whole $3,000 comes off income that was taxed at 22 cents on the dollar: $660 of federal income tax. Had the deduction reached below $50,400, the part in the 12% band would have saved 12 cents; the calculator runs the brackets twice rather than multiplying by one rate, so it gets that boundary right.
Now suppose that same worker's household income is $160,000 on a single return. That is $10,000 over the threshold, so the deduction is reduced by 10 × $100 = $1,000, leaving $2,000. At $275,000 of income a single filer's deduction is gone entirely even at the full $12,500 cap.
What this calculator does not decide
It assumes every overtime hour you enter was FLSA-required overtime paid at exactly 1.5× your regular rate. If some of it was paid at a higher multiple, only the FLSA half-time portion is qualified; if you are exempt from the FLSA (many salaried managers and professionals are), none of it is. It does not model state income tax, because most states have not adopted the deduction. And it uses the statute's "$100 for each $1,000" reduction the way Schedule 1-A steps it: $100 for each full $1,000 of income over the threshold, with no credit for a partial thousand.
Official sources used on this page
- 26 U.S.C. 225, Qualified overtime compensation (limits, phase-out, joint-return rule, 2028 sunset): page read 3 Sep 2026
- IRS: Working Families Tax Cuts: deductions for working Americans and seniors: updated July 25, 2025
- Rev. Proc. 2025-32 (2026 brackets and standard deduction used for the tax saved): 2025-10-09
Every rule record names its source, revision and the date it was last verified; the results panel prints the ones your calculation used. Rules last verified 2 September 2026.