No tax on overtime: the 2026 overtime deduction explained
From 2025 through 2028, hourly and other non-exempt workers can deduct the premium part of their overtime pay, up to $12,500 a year ($25,000 on a joint return). The catch: it is the "half" in time-and-a-half, not the whole check.
General information, not tax advice. Based on the IRS instructions for Schedule 1-A and 2026 IRS guidance. Your situation may differ; check the official sources below or ask a tax professional.
The deduction at a glance
| Maximum deduction | $12,500; $25,000 joint |
| Phase-out starts (MAGI) | $150,000; $300,000 joint |
| Fully phased out | $275,000; $550,000 joint |
| Years | 2025 to 2028 |
| Filing status | Any, but married couples must file jointly |
The deduction falls by $100 for each full $1,000 of modified AGI (for most people, the AGI on Form 1040) over the threshold.
What counts as qualified overtime
Qualified overtime is pay the Fair Labor Standards Act requires, above your regular rate. The FLSA generally requires at least one and a half times the regular rate for hours over 40 in a workweek, so the qualified part is the extra half. Some pay stubs call it the "overtime premium" or "FLSA overtime premium."
It does not include:
- Pay above time-and-a-half, such as double time.
- Weekend or holiday premiums when you did not work over 40 hours that week.
- Overtime paid only under state law or a union or employment contract.
- Overtime paid to workers who are exempt from the FLSA.
- Anything counted as a qualified tip.
Police, firefighters and public employers that use a different FLSA work period, or pay in comp time, figure the premium under the rule that applies to them.
Who qualifies
- Employees covered by, and not exempt from, the FLSA overtime rules. Workers paid on a 1099 can qualify too if the payer reports qualified overtime.
- A valid Social Security number that is valid for employment.
- A joint return if you are married.
Finding the amount
For 2026, employers report qualified overtime on the W-2 in box 12 with code TT. Only the premium is in that box, so you can use it as is.
For 2025 returns, W-2s did not show it separately. The IRS lets you use an employer statement or box 14 amount, or figure it yourself: if your pay records show total overtime pay at time-and-a-half, divide it by 3.
Example
A single warehouse worker earns $68,000 in 2026, including $15,000 of overtime pay at time-and-a-half. The premium is one third of that, $5,000, and all of it is deductible. Taxable income falls from $51,900 to $46,900, saving about $750 of federal income tax.
Estimate it: the Schedule 1-A calculator applies the limits and phase-outs for all four new deductions and shows the tax saved. For your whole return, try the tax refund calculator.
Frequently asked questions
Is all my overtime pay tax-free?
No. Only the premium counts: the part above your regular rate. At time-and-a-half, that is one third of your overtime pay. It is deductible for federal income tax up to $12,500 ($25,000 joint), and still subject to Social Security and Medicare tax.
I am salaried. Does my overtime count?
Only if you are not exempt from the Fair Labor Standards Act overtime rules. Overtime paid to exempt employees, or paid only because of state law or a contract, does not qualify. Ask your employer whether you are FLSA non-exempt.
Does double time count?
Only the first half. Pay above time-and-a-half, such as double time under a union contract or state law, is not qualified overtime.
What about weekend or holiday premium pay?
Not unless you also worked more than 40 hours that week. The deduction covers overtime the FLSA requires, generally for hours over 40 in a workweek.
Is the $25,000 joint limit per spouse?
No. A married couple filing jointly shares one $25,000 limit.
Can married people filing separately claim it?
No. Married couples must file jointly.
Do I need to itemize?
No. It is claimed on Schedule 1-A with either the standard deduction or itemized deductions.
Official sources
- IRS Instructions for Form 1040 (2025), Instructions for Schedule 1-A
- IRS Schedule 1-A (Form 1040), Additional Deductions
- IRS Instructions for Forms W-2 and W-3 (2026): box 12 codes TP and TT, box 14b
- IRS Notice 2025-69 (tips and overtime: transition relief and guidance)
The other new deductions
- No tax on tips — Who qualifies, which tips count, the tipped-occupations list and how tips show on your W-2.
- Car loan interest deduction — New, U.S.-assembled vehicles bought with a loan after 2024: the conditions and the limit.
- Senior deduction — An extra deduction for each person 65 or older, on top of the standard deduction.
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