What counts
- Only the premium. For time and a half, only the “half” counts. At $24 an hour, $12 of each $36 overtime hour qualifies.
- Only FLSA overtime. Hours over 40 in a workweek for a non-exempt employee. Overtime paid only because of state law or a union contract doesn’t qualify.
- Tax years 2025 through 2028.
How much you can deduct
Up to $12,500 a year, or $25,000 on a joint return. The limit shrinks by $100 for every $1,000 of modified adjusted gross income above $150,000 ($300,000 joint). You can take it whether or not you itemize. Married couples must file jointly, and you need a Social Security number valid for employment.
What it does not do
It doesn’t remove Social Security (6.2%) or Medicare (1.45%) from overtime, and most states still tax overtime as regular wages. Your employer still withholds federal income tax on overtime as usual, so on its own the deduction shows up as a smaller tax bill or a bigger refund.
Getting it in your paycheck
If you are confident your overtime qualifies, estimate the yearly premium and enter it on line 1b of the W-4 Step 4(b) Deductions Worksheet. Example: $24an hour with 6 hours of overtime most weeks (48 weeks) is about $3,456 of premium a year. Adding that to Step 4(b) lowers weekly federal withholding by about $7.98 for a single filer, from $99.20 to $91.22.
Be conservative. If your overtime drops or doesn’t qualify, a Step 4(b) entry means too little was withheld and you could owe at tax time.
How it is reported
For 2025, employers weren’t required to report qualified overtime separately, so many workers estimate it from pay stubs. Starting with 2026, employers must report it separately on Form W-2. You claim the deduction on Schedule 1-A of Form 1040.
Use the overtime calculator to see the premium and estimated deduction value for your own hours.
Frequently asked questions
Is overtime tax-free now?
No. Overtime is still subject to Social Security, Medicare and usually state income tax, and federal income tax is still withheld. Eligible workers can deduct the premium part of qualifying overtime on their federal return, which lowers their income tax for the year.
Does double time count?
Only the premium the FLSA requires counts: the extra half of your regular rate for hours over 40 in a week. If you are paid double time, the extra beyond time-and-a-half does not qualify.
Does California daily overtime count?
Overtime required only by state law, such as daily overtime after 8 hours, does not qualify unless the same hours are also FLSA overtime (over 40 in the workweek).
Can I take the deduction if I’m married filing separately?
No. Married taxpayers must file jointly to claim it, and you need a Social Security number valid for employment.
When does the deduction end?
It covers tax years 2025 through 2028 unless Congress extends it.
