No Tax on Overtime Calculator (2025–2028 OBBBA Federal Deduction)
Estimate how much of your overtime pay qualifies for the OBBBA federal income tax deduction (up to $12,500 single / $25,000 joint), including MAGI phase-out and your state's conformity status.
Estimate only · Federal income tax only. FICA (Social Security 6.2% + Medicare 1.45%) still applies. State income tax may differ — see State Conformity below.
How the Calculation Works
OBBBA's deduction applies only to the FLSA premium portion (the 0.5× "half-time" amount), not to the straight-time portion. The four-step formula below is what Schedule 1-A applies behind the scenes.
Step 1 · Premium = hourly_rate × 0.5 × annual_overtime_hours
Step 2 · Cap = min(premium, $12,500 single / $25,000 joint)
Step 3 · Phase-out = floor(max(0, MAGI − threshold) / 1,000) × $100
Step 4 · Savings = effective_deduction × marginal_federal_rate
Reference: IRC §225 (added by OBBBA §70202, Public Law 119-21). IRS Notice 2025-69 governs W-2 reporting transition relief. The deduction sunsets December 31, 2028 unless Congress extends it.
OBBBA Timeline (2025–2028)
Six dates that matter for the No Tax on Overtime deduction.
- 2025-07-04OBBBA signed into law (Public Law 119-21) — adds IRC §225. Deduction applies retroactively to OT earned from January 1, 2025.
- 2025-11IRS Notice 2025-69 issued — transition relief for tax year 2025 W-2 reporting (employers may use box 14 with any label, or omit the OT line entirely).
- 2026 Tax SeasonFirst filing season to claim the deduction (for the 2025 tax year). Search demand peaks here.
- 2026-01-01Mandatory W-2 box 12 code 'TT' reporting begins for tax year 2026 onward.
- 2027-Q4 / 2028-Q1Congressional window to extend or replace the deduction. No automatic renewal — extension requires new legislation.
- 2028-12-31Deduction sunsets. OT earned after this date is no longer eligible unless Congress acts.
How to Report on Your Taxes
OBBBA's deduction is claimed on Schedule 1-A (a new attachment to Form 1040 introduced for tax year 2025). The form applies the cap and phase-out automatically.
- Tax year 2025 W-2
- Optional — IRS Notice 2025-69 transition relief lets employers use box 14 with any label, or skip the OT line entirely. Use pay stubs to compute the FLSA premium if needed.
- Tax year 2026+ W-2
- Mandatory — qualified OT compensation must appear in box 12 with code 'TT'.
- Schedule 1-A Part III
- Line 14a = qualified OT from W-2 box 1. Line 14b = qualified OT from 1099-NEC box 1 / 1099-MISC box 3. Total flows to Form 1040 Line 13b.
- Filing requirements
- If married, you must file jointly (no MFS). Both spouses must have Social Security numbers valid for employment.
Worked Examples
Three scenarios across income levels — full deduction, partial phase-out, and full phase-out — using a 22% / 32% bracket.
| Scenario | Inputs | Premium | Effective Deduction | Tax Savings |
|---|---|---|---|---|
| Average single worker | $22/hr · 150 OT hrs · MAGI $60,000 | $1,650 | $1,650 (full) | $363 (22%) |
| Joint, entering phase-out | $30/hr · 300 OT hrs · MAGI $310,000 | $4,500 | $3,500 (after $1,000 reduction) | $770 (22%) |
| High-income single, fully phased out | $50/hr · 400 OT hrs · MAGI $280,000 | $10,000 | $0 (above $275k full phase-out) | $0 |
State Conformity
OBBBA's deduction applies at the federal level only. Most states must affirmatively conform to honor it. Below are six representative states; the FAQ covers extended decoupled states (CO, IL, RI, DC) and the eight no-state-tax states (AK, FL, NV, NH, SD, TN, TX, WA) where conformity is not applicable.
Last verified: 2026-05-10
| State | Status | Detail |
|---|---|---|
| California | Non-conform | California does not conform — state income tax still applies to your full overtime pay. |
| New York | Decoupled | New York explicitly decoupled. Taxpayers must add the federal deduction back on Form IT-225 when filing the state return. |
| Indiana | Conform 2026 (single year) | Indiana legislature temporarily coupled to the federal exemption for tax year 2026, then will re-evaluate. |
| Georgia | Non-conform (fixed-date) | Georgia uses fixed-date conformity to IRC as of 2024-12-31, which predates OBBBA's 2025-07-04 enactment — state-level deduction not available unless the legislature updates the conformity date. |
| Michigan | Conform 2026–2029 | Michigan signed Public Act 24 of 2025 on 2025-10-07. State-level overtime deduction available for tax years 2026 through 2029, conforming to IRC §224 / §225. |
| Wisconsin | Vetoed | Wisconsin Assembly and Senate passed AB 461 / SB 454, but Governor Tony Evers vetoed both bills in April 2026 — no state-level conformity in effect. |
Sources & Methodology
Last reviewed: 2026-05-10
- IRC §225 — added by OBBBA §70202, Public Law 119-21 (signed 2025-07-04)
- IRS Notice 2025-69 — Transition relief for tips and overtime deductions
- IRS — Q&A on the deduction for qualified overtime compensation
- Schedule 1-A (Form 1040) — Additional Deductions, tax year 2025
- DOL FLSA Fact Sheet #23 — Overtime Pay Requirements
How to Use
Step 1 · FLSA premium portion
premium = hourly_rate × 0.5 × annual_overtime_hours. OBBBA only deducts the 'half' in 'time and a half', not the whole overtime payment.
Step 2 · Apply the annual cap
capped = min(premium, cap), where cap = $25,000 for married filing jointly or $12,500 for single / others.
Step 3 · MAGI phase-out
Each $1,000 of MAGI above the threshold ($150,000 single / $300,000 joint) reduces the deduction by $100. Fully phased out at $275,000 single / $550,000 joint.
Step 4 · Federal tax savings
savings = effective_deduction × marginal_federal_rate. The deduction reduces taxable income, so savings depend on your marginal bracket.
Frequently Asked Questions
OBBBA (the One Big Beautiful Bill Act, Public Law 119-21, signed 2025-07-04) added IRC §225 to the Internal Revenue Code. It creates a federal income tax deduction for the FLSA premium portion of qualified overtime — the 0.5× 'half' in time-and-a-half. Effective tax years 2025 through 2028.
Enter your hourly rate, annual OT hours, filing status, MAGI, and marginal federal rate. The calculator applies the four-step IRC §225 formula: compute the FLSA premium, cap it at $12,500 (single) or $25,000 (joint), reduce by $100 per $1,000 of MAGI above the phase-out threshold, then multiply by your marginal rate to estimate federal tax savings.
Roughly: gross OT × (1 − marginal rate) + (effective deduction × marginal rate). The deduction reduces your taxable income by up to the cap, so your after-tax overtime increases compared to pre-OBBBA. FICA (7.65%) is unchanged — only federal income tax is affected.
If your 2025 W-2 separately lists qualified OT (in box 14 or elsewhere), use that figure. If not — IRS Notice 2025-69 lets employers omit it for 2025 — use pay stubs to compute the FLSA premium yourself: hourly_rate × 0.5 × annual_OT_hours. Enter the result on Schedule 1-A Part III, Line 14a (W-2 source) or Line 14b (1099 source).
OBBBA targets the 'extra' employers pay for overtime — the 0.5× premium on top of the base rate, defined under FLSA. The straight-time portion (the 1× base) is taxed normally because it's compensation for hours worked. So 'No Tax on Overtime' is shorthand for 'no tax on the half-time premium.'
The deduction begins phasing out at $150,000 MAGI (single) or $300,000 (joint). Each $1,000 above the threshold reduces the deduction by $100. Fully phased out at $275,000 single or $550,000 joint.
It varies. As of 2026-05-10: CA, NY, GA, CO, IL, RI, and DC do not conform; IN conforms for tax year 2026 only; MI conforms for 2026–2029 (PA 24 of 2025); WI's bill was vetoed by Governor Evers in April 2026. Eight states have no broad income tax (AK, FL, NV, NH, SD, TN, TX, WA), so conformity does not apply.
For 2025, employers may report qualified OT in box 14 (any label) or omit it entirely under IRS Notice 2025-69 transition relief. From 2026 onward, qualified OT must appear in W-2 box 12 with code 'TT'. You then enter the amount on Schedule 1-A Part III (Line 14a from W-2, Line 14b from 1099); the total deduction flows to Form 1040 Line 13b.
IRC §225 contains a sunset clause — no deduction is allowed for tax years beginning after 2028-12-31. There is no automatic extension. Watch for legislative activity in 2027-Q4 / 2028-Q1; if no extension passes, OT earned in 2029 returns to fully taxable.
No. OBBBA only affects federal income tax. FICA payroll taxes (Social Security 6.2% + Medicare 1.45%, plus the employer match) still apply to your full overtime pay, including the premium portion.