The overtime tax deduction was introduced by the One Big Beautiful Bill Act (OBBB Act) for tax years 2025 through 2028. Non-exempt employees who earn qualified overtime compensation — pay for hours worked beyond 40 per week — can deduct up to $12,500 (single) or $25,000 (married filing jointly) from their federal taxable income. Use this calculator to estimate your eligible deduction and potential tax savings.
Enter Your Overtime Details
Your highest federal income tax rate
Total overtime compensation earned during the year
Your base wages excluding overtime — used for MAGI calculation
Interest, dividends, rental income, etc.
Hours beyond 40/week — for weekly pay visualization
Deduction Breakdown
MAGI Phase-Out Details
Overtime Income Breakdown
Important: FICA taxes (Social Security 6.2% + Medicare 1.45%) still apply to all overtime pay — the OBBB Act deduction only reduces your federal income tax. This calculator provides estimates based on 2025-2028 rules. Consult a tax professional for advice specific to your situation.
How to Use This Overtime Tax Deduction Calculator
The One Big Beautiful Bill Act introduced a significant tax break for hourly workers who earn overtime pay. For tax years 2025 through 2028, qualified overtime compensation — wages earned for hours worked beyond 40 per week — can be deducted from your federal taxable income. This calculator helps you estimate the size of that deduction and your potential tax savings, factoring in filing status caps and MAGI phase-outs.
Step 1: Select Your Filing Status and Tax Bracket
Choose your tax filing status — this determines your maximum deduction cap ($12,500 for single, $25,000 for married filing jointly) and the MAGI thresholds where the deduction begins to phase out. Then select your marginal federal tax bracket, which is the rate applied to your highest dollars of taxable income. The tax savings estimate multiplies your eligible deduction by this rate.
Step 2: Enter Your Overtime and Regular Pay
Enter your total annual overtime pay as reported (or expected to be reported) on your W-2. Starting in 2026, employers must separately report qualified overtime compensation on the W-2, making this figure easy to find. Also enter your regular (non-overtime) wages and any other income — these are combined to calculate your MAGI, which determines whether the phase-out applies.
Step 3: Review Your Results
The calculator shows your eligible deduction amount after applying the filing status cap and any MAGI phase-out reduction. It multiplies this by your marginal tax rate to estimate your actual tax savings. You will also see a visual breakdown of where your MAGI falls within the phase-out range, and if you entered weekly overtime hours, a breakdown of your overtime income on a weekly and annual basis.
Understanding the MAGI Phase-Out
The overtime tax deduction phases out over a $10,000 MAGI range. For single filers, the phase-out starts at $150,000 and ends at $160,000. For married filing jointly, it starts at $300,000 and ends at $310,000. If your MAGI is within the range, only a proportional portion of the deduction is allowed. For example, a single filer with $155,000 MAGI would keep 50% of their deduction. Above the upper threshold, no deduction is available.
Key Rules and Limitations
Only non-exempt employees — typically hourly workers covered by the Fair Labor Standards Act — qualify for this deduction. Salaried exempt employees, independent contractors, and self-employed individuals are not eligible. The deduction is above-the-line, meaning you do not need to itemize to claim it. Importantly, FICA taxes (Social Security and Medicare) still apply to overtime wages — the deduction only reduces your federal income tax liability.
FAQ
What is the overtime tax deduction from the OBBB Act?
The One Big Beautiful Bill Act (OBBB Act) introduced a new above-the-line deduction for qualified overtime compensation. For tax years 2025 through 2028, eligible non-exempt workers can deduct overtime pay earned beyond 40 hours per week — up to $12,500 for single filers or $25,000 for married filing jointly — directly from their taxable income.
Who qualifies for the overtime tax deduction?
The deduction is available to non-exempt employees — typically hourly workers who receive overtime pay at 1.5x their regular rate for hours beyond 40 per week. Salaried exempt employees, independent contractors, and self-employed individuals do not qualify. Your employer must report qualified overtime compensation separately on your W-2 starting in 2026.
What is the MAGI phase-out for the overtime deduction?
The deduction begins to phase out at $150,000 modified adjusted gross income (MAGI) for single filers and $300,000 for married filing jointly. The phase-out range is $10,000, meaning the deduction is fully eliminated at $160,000 (single) or $310,000 (MFJ). If your MAGI falls within the phase-out range, only a proportional share of the deduction is allowed.
Does the overtime deduction eliminate FICA taxes on overtime?
No. The overtime tax deduction only reduces your federal income tax liability. Social Security tax (6.2%) and Medicare tax (1.45%) — collectively known as FICA — still apply to all overtime wages. The deduction is an income tax benefit, not a payroll tax exemption.
Is this overtime deduction calculator really free?
Yes, this overtime tax deduction calculator is completely free to use with no account or signup required. All calculations run locally in your browser — no income data is sent to any server. You can use it as many times as you need to estimate your potential tax savings.
Is my financial data safe when using this calculator?
Absolutely. Every calculation runs entirely in your browser using JavaScript. No income figures, personal details, or any data whatsoever leaves your device. You can even disconnect from the internet and the calculator will continue to work perfectly. Your privacy is fully protected.
How long does the overtime tax deduction last?
The qualified overtime compensation deduction is available for tax years 2025 through 2028. It is a temporary provision under the OBBB Act. Unless Congress extends or makes it permanent, the deduction will expire after the 2028 tax year and overtime pay will return to being fully taxable for income tax purposes.
Can I claim the overtime deduction without itemizing?
Yes. The overtime deduction is an above-the-line deduction, meaning you can claim it regardless of whether you take the standard deduction or itemize. It reduces your adjusted gross income (AGI) directly, which may also help you qualify for other tax benefits that have AGI-based phase-outs.