No Tax on Overtime: How Much Will You Save? (2026)

Quick answer: How much will you save with No Tax on Overtime?

Enacted under the federal One, Big, Beautiful Bill Act, the new IRS 'No Tax on Overtime' provision allows eligible employees to deduct up to $12,500 (single filers) or $25,000 (married couples filing jointly) of qualified overtime premium compensation from their federal taxable income on Schedule 1-A (Form 1040) for tax years 2025 through 2028.

Your net annual tax savings equal your qualified overtime premium multiplied by your federal marginal income tax rate (typically between 12% and 24% for most hourly workers). For example, an employee earning $30/hour who logs 8 hours of overtime per week accumulates roughly $6,000 in qualified overtime premium pay. In the 22% tax bracket, this yields an immediate $1,320 annual tax reduction — putting an extra $50.77 into every bi-weekly paycheck.

Direct answer: Use the free No Tax on Overtime Calculator to compute your exact 0.5x premium, test your Modified AGI against the $150k/$300k phaseout thresholds, and calculate your estimated take-home boost per paycheck.

Official 2026 IRS Schedule 1-A caps, limits & phase-out rules

The Internal Revenue Service published initial guidance outlining the strict statutory parameters governing the Schedule 1-A overtime and tips deductions. Taxpayers must understand these statutory thresholds when estimating their savings:

Sources: IRS Newsroom: What to know about the no tax on overtime deduction, IRS Newsroom: What the no tax on tips deduction means for you, and IRS Draft Form 1040 Schedule 1-A (verified September 2026).

The FLSA 'Half' Rule: Why only part of your overtime pay is tax-free

A common point of confusion is whether all overtime pay is tax-free. Under federal law, the answer is no. Under the Fair Labor Standards Act (FLSA), overtime compensation is structured as 'time-and-a-half' (1.5x your regular hourly rate). The IRS deduction applies strictly to the 0.5x premium, not your regular base wage.

For example, suppose an emergency room nurse earns a base rate of $40 per hour and works 10 overtime hours in a workweek. For those 10 hours, the total pay is $60/hour ($600 total).

Of that $600: $400 is regular base pay ($40/hr × 10 hrs), which remains standard taxable income. The remaining $200 ($20/hr × 10 hrs) represents the qualified overtime premium. That $200 is the tax-free deduction claimed on Schedule 1-A.

This design ensures parity between workers: you are not taxed extra for working over 40 hours, but standard base wage income remains subject to general income taxation.

Step-by-step: How to calculate your deduction and claim it on Form 1040

Calculating and filing for your Schedule 1-A deduction requires a few simple steps:

• Step 1: Open the free No Tax on Overtime Calculator in your browser.
• Step 2: Choose your filing status (Single, Married Filing Jointly, or Head of Household).
• Step 3: If estimating ahead of time, enter your regular hourly rate and expected weekly overtime hours. If filing your taxes, locate Box 12 of your Form W-2 and input the figure labeled Code TT.
• Step 4: If you work in an eligible tipped occupation (food service, hospitality, personal care), enter your reported tip income to model combined Schedule 1-A savings.
• Step 5: Review the MAGI phase-out meter. If your Modified AGI is under $150,000 ($300,000 joint), you receive 100% of your eligible deduction.
• Step 6: Transfer your final calculated deduction to Schedule 1-A of Form 1040 (Additional Deductions) to lower your taxable income.

Who qualifies for the deduction (and who does not)

To ensure compliance with IRS regulations, taxpayers must meet specific statutory criteria to claim Schedule 1-A deductions:

Eligible Workers: Non-exempt hourly employees whose overtime is mandated and regulated by the Fair Labor Standards Act (FLSA) or equivalent federal labor standards. Both itemizing taxpayers and taxpayers claiming the standard deduction are fully eligible.

Ineligible Workers: Independent contractors (1099-NEC), gig workers, and self-employed individuals do not receive statutory FLSA overtime pay and therefore cannot claim this deduction. Salaried exempt professionals who receive discretionary bonuses or flat overtime stipends not mandated by FLSA are also ineligible.

Married Filing Separately: Married couples who choose to file separate returns are legally disqualified by statute from claiming the overtime and tips deductions on Schedule 1-A. Married filers must submit a joint return to benefit.