The 2026 "No Tax on Overtime" deduction lets you deduct your overtime premium up to $12,500 ($25,000 joint). See your deduction and federal tax savings instantly. ✓ 2026 IRS figures
2026 OT deduction • Savings
The One Big Beautiful Bill lets workers deduct the overtime premium — the extra "half" of time-and-a-half pay — up to $12,500 per year ($25,000 married filing jointly). It's claimed on the new Schedule 1-A on top of your standard deduction. Only the premium counts: if your regular rate is $30 and overtime pays $45, the deductible part is the $15 premium per overtime hour.
The deduction phases out above $150,000 modified AGI ($300,000 joint), reduced by $100 per $1,000 over. Your savings equal the deductible premium times your tax bracket. This tool is an educational estimate, not tax advice.
Recent US legislation created a deduction for qualified overtime compensation, allowing eligible workers to deduct the premium portion of overtime pay — the extra half in "time-and-a-half" — rather than the whole overtime payment. That distinction is the crux: on eight hours of overtime at $30 an hour, the regular $240 remains fully taxable and only the $120 premium is deductible. The deduction reduces income tax but not payroll tax, so Social Security and Medicare still apply to the full amount, and income limits phase the benefit out for higher earners.
Qualified overtime = premium portion only = total OT pay − (OT hours × regular rate)Equivalently, the "half" in time-and-a-halfTax saved = Qualified overtime × marginal income tax rateFICA still applies to the full overtime amountwhere:
Assumptions: Deduction rules, caps and phase-out thresholds are set by statute and subject to change; confirm current provisions before relying on a projection. Payroll tax is unaffected.
Separate the premium from the base pay and value the deduction.
Result$3,900 deductible — $858 of income tax saved
Deducting the full $11,700 would overstate the benefit threefold. The premium-only rule is the single most misunderstood feature of the provision, and it means the deduction is worth about a third of what the headline suggests.