No tax on overtime in 2026: who qualifies and how to claim
The One Big Beautiful Bill Act (OBBBA) lets you deduct the premium part of your overtime pay from taxable income for tax years 2025 through 2028. It is not an exemption from payroll tax, and it is not all of your overtime pay. Here is exactly what counts, what it is worth, and where it goes on your return.
| Key fact | 2026 rule |
|---|---|
| Maximum deduction | $12,500 ($25,000 if married filing jointly) |
| Phase-out starts | MAGI over $150,000 ($300,000 joint) |
| Phase-out rate | $100 less deduction per $1,000 of MAGI over the threshold |
| Tax years | 2025–2028 |
| Need to itemize? | No — available with the standard deduction |
| Form | Schedule 1-A |
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What counts as qualified overtime
Only overtime that the federal Fair Labor Standards Act (FLSA) requires your employer to pay counts. And only the premium — the “half” in time-and-a-half — is deductible. The base hourly rate you would have earned anyway is not.
Overtime paid under a state law or a union contract that goes beyond the FLSA requirement, such as daily overtime or double-time rates, generally does not count for the part above the FLSA amount. Salaried employees who are exempt from overtime cannot claim this deduction.
Worked example: how much is deductible
Maria earns $30 an hour. Her overtime rate is $45. For each overtime hour, $30 is her regular pay and $15 is the premium. Over the year she works 100 overtime hours, so her qualified overtime is 100 × $15 = $1,500. With a $90,000 MAGI (single), there is no phase-out, so she deducts the full $1,500.
At a 22% marginal rate that is roughly $330 less federal income tax.
Income phase-out
The deduction shrinks once your modified adjusted gross income (MAGI) passes $150,000 single or $300,000 joint. For every $1,000 (or part of $1,000) over the line, your deduction falls by $100. A single filer at $160,000 MAGI with $12,500 of qualified overtime loses $1,000 and deducts $11,500.
Who cannot claim it
- Married couples must file jointly; married filing separately is not eligible.
- You need a valid Social Security number.
- Highly compensated employees (as defined for retirement plans) are not eligible for the overtime deduction.
How to claim it
- Find the qualified overtime your employer reports. For 2025 returns the IRS allowed a reasonable method to figure it when the W-2 was not separate; check current IRS instructions.
- Complete Schedule 1-A for the overtime section.
- Carry the result to your Form 1040. It lowers taxable income whether you itemize or not.
Frequently asked questions
Is overtime pay tax-free now?
No. Only the premium portion of FLSA-required overtime is deductible, up to $12,500 ($25,000 joint), and phased out at higher incomes. Payroll taxes still apply.
Can I claim it if I take the standard deduction?
Yes. It is a deduction from adjusted gross income that does not require you to itemize.
Does double-time count?
Only to the extent the FLSA requires. Premium pay above the FLSA requirement, such as many state or contract double-time rates, generally does not.
How long does the overtime deduction last?
It applies to tax years 2025 through 2028 unless Congress extends it.
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This article is educational information, not tax advice. Rules can change and your situation may differ. Confirm details on IRS.gov or with a tax professional. Figures reflect law and IRS guidance as of 2026-10-21. See our methodology.