No Tax on Overtime Calculator (2025-2026)

Why "No Tax on Overtime" Is Narrower Than It Sounds

The headline makes it sound like every overtime dollar escapes tax. It does not. For the 2025 tax year, the deduction targets only the premium built into time-and-a-half pay — the extra 0.5x above your regular rate that the Fair Labor Standards Act requires for qualifying overtime. Your normal hourly wage on those same hours stays fully taxable. So if you earn $30 an hour and get $45 for overtime, only the $15 premium per hour is in play, not the whole $45.

The Numbers That Shape Your Deduction

Three rules do the heavy lifting. First, the premium multiplier of 0.5 isolates the deductible slice. Second, an annual cap limits it to $12,500 (single) or $25,000 (married filing jointly). Third, a MAGI phase-out mirrors the tips deduction: above $150,000 (single) or $300,000 (joint) of modified adjusted gross income, the deduction drops $100 for every $1,000 over the line. Cross far enough past the threshold and the benefit disappears entirely.

A Worked Example in USD

Meet Marcus, a single filer who earns a regular rate of $30/hour and logs 300 overtime hours in 2025. His MAGI is $160,000, and his top dollars sit in the 22% bracket.

Step 1 — Premium: 300 hours × $30 × 0.5 = $4,500 of overtime premium.

Step 2 — Cap: The $4,500 is well under the $12,500 single cap, so nothing is trimmed here.

Step 3 — Phase-out: His MAGI is $160,000, which is $10,000 over the $150,000 threshold. That's 10 steps of $1,000, so the reduction is 10 × $100 = $1,000.

Step 4 — Deductible: $4,500 − $1,000 = $3,500.

Step 5 — Tax saving: $3,500 × 22% = $770.

Even though Marcus worked 300 overtime hours, his deductible premium is $3,500 and his estimated saving is about $770 — a real benefit, but far smaller than "all my overtime is tax-free" would suggest. Had his MAGI been under $150,000, the full $4,500 premium would deduct, lifting the saving to roughly $990.

Where High Earners Lose the Benefit

Because the phase-out removes $100 per $1,000 of MAGI over the limit, a single filer is fully phased out once MAGI runs about $125,000 over the threshold relative to their capped premium. The bigger your premium, the more phase-out room you have — but a modest premium combined with a high MAGI can wipe the deduction out completely. That asymmetry is why two coworkers with identical overtime can see very different savings.

Plan the Rest of Your Pay Too

The overtime premium deduction is one slice of your tax picture. To see how your full wages land across the federal brackets, run the numbers in our tax bracket calculator, and if you're weighing a rate change or a salaried offer against hourly overtime, compare it with the hourly to salary calculator.

Treat It as a Planning Estimate

This calculator gives an indicative figure for the 2025 tax year. It models the half-premium, the caps and the MAGI phase-out, but it does not capture every eligibility rule, documentation requirement, or how the deduction interacts with state taxes and payroll withholding. Use it to size the benefit and plan your hours — then confirm the final amount with a tax professional or the official IRS guidance before you file.