No Tax on Overtime (2025–2028): The Deduction, What Counts as 'Qualified' Overtime and the Cap
"No tax on overtime" is really a deduction for part of your overtime pay. Here is exactly which part counts, the cap and phase-out, and what it's worth on a real paycheck.
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📐 Figures verified Sep 28, 2026 against the IRS fact sheet on the new deductions (FS-2025-03), Public Law 119-21 and the Labor Department's overtime rules under the Fair Labor Standards Act. The deduction amounts come from our figures registry. This is general information, not tax advice. How we check numbers →
For 2025 through 2028, you can deduct the extra "half" of time-and-a-half overtime required by federal law, up to $12,500 a year ($25,000 joint), itemizing or not. It isn't your whole overtime check: at $45 an hour of overtime on a $30 base, only $15 an hour counts. It phases out above $150,000 of income ($300,000 joint), and payroll taxes still apply.
Numbers That Matter
| Figure | Amount | Source | Verified |
|---|---|---|---|
| Maximum deduction for qualified overtime | $12,500 a year ($25,000 joint), tax years 2025–2028 | IRS FS-2025-03 | Sep 28, 2026 |
| Phase-out | Reduced by $100 for each $1,000 of modified AGI over $150,000 ($300,000 joint) | IRS FS-2025-03 | Sep 28, 2026 |
| Who can claim it | Itemizers and non-itemizers; married couples must file jointly | IRS FS-2025-03 | Sep 28, 2026 |
| What counts | Only the pay above your regular rate for overtime the federal wage law requires | IRS FS-2025-03 | Sep 28, 2026 |
| Federal overtime rule | Time and a half for hours over 40 in a workweek for non-exempt employees | U.S. Department of Labor | Sep 28, 2026 |
| The law | Public Law 119-21 (2025) | GovInfo | Sep 28, 2026 |
What Counts as Qualified Overtime
- Only the premium: the portion of overtime pay above your regular rate, the "half" in time-and-a-half.
- Only overtime the federal law requires: hours over 40 in a workweek for employees covered by the Fair Labor Standards Act. Extra premiums paid only because of a state law, union contract or company policy may not count.
- Only non-exempt workers: salaried employees exempt from federal overtime rules generally have no qualified overtime.
Who Qualifies
- A non-exempt employee paid overtime under the federal wage law.
- A valid Social Security number for work, and a joint return if married.
- Income under the phase-out for the full cap: above $150,000 ($300,000 joint), it shrinks $100 per $1,000.
- Records of your overtime premium: check your pay stubs and year-end forms for how your employer reports it.
What It Doesn't Do
Social Security and Medicare taxes still apply to all overtime pay, withholding may not change automatically, and states decide whether to follow the federal deduction. Because it's a deduction, it lowers taxable income; its value is the qualified amount times your tax bracket.
Worked Example: A $30-an-Hour Worker
- Overtime pay: 300 hours at time and a half on a $30 base, or $45 an hour, is $13,500.
- The deductible part: only the $15-an-hour premium, $4,500, not the full $13,500.
- What it saves: about $540 in the 12% bracket or $990 in the 22% bracket; about $1,033 of Social Security and Medicare tax on the overtime is still owed.
- A higher-earning couple: at $320,000 of joint modified AGI, their $25,000 cap falls to $23,000.
Savings use a single marginal rate for simplicity; your actual savings depend on your full return.
Decision Rules
If this, then that
- If you're paid hourly overtime → deduct the premium portion for 2025 through 2028, itemizing or not.
- If you're salaried and exempt → this deduction likely doesn't apply.
- If your overtime comes from state law or a contract → check whether it's the federally required amount.
- If you're married → file jointly; the cap doubles to $25,000.
- If you want bigger paychecks now → consider updating your W-4 rather than waiting for a refund.
Mistakes to avoid
- Deducting your whole overtime check instead of the premium.
- Assuming overtime is now free of payroll tax.
- Counting double-time or state-only premiums without checking.
- Filing separately when married.
- Ignoring the income phase-out.
Related: no tax on tips covers the companion deduction; the car-loan interest deduction covers another new write-off; 2026 tax changes lists everything new; and the Paycheck Optimizer helps with withholding.