No Tax on Overtime Calculator: Key Takeaways
- The No Tax on Overtime law allows eligible workers to deduct the premium portion of overtime pay.
- The maximum deduction is $12,500 for single filers and $25,000 for joint filers, with income phaseouts.
- The deduction applies only to federal income tax, while payroll and state taxes may still apply.
The No Tax on Overtime law gives workers a temporary way to reduce taxable income and increase take-home pay from overtime hours during 2025–2028.
What the No Tax on Overtime Law Means
“No Tax on Overtime” is a new above-the-line federal deduction (a deduction taken before adjusted gross income is calculated) effective 2025–2028.
It lets eligible workers deduct the “premium” portion of overtime pay from their federal taxable income.
If you’d like a quick overview of how this policy works and who benefits, watch this explainer video:
The maximum deduction is $12,500 for single filers and $25,000 for married filing jointly, but it phases out — meaning the benefit gradually shrinks — once your modified adjusted gross income exceeds $150,000 (single) or $300,000 (joint).
The term “no tax” refers only to federal income tax — Social Security, Medicare, and payroll taxes still apply.
Employers and payors are required to report “qualified overtime compensation” on your Form W-2 or relevant statements.
How To Use the No Tax on Overtime Calculator
To estimate your benefit, start by identifying your regular hourly rate (Base_rate) and your overtime rate (OT_rate).
Then determine how many overtime hours you worked (H).
1. Calculate qualified overtime
This is the “premium” above your base pay:
Qualified Overtime = (OT rate – Base rate) × Overtime hours
Example: If Base rate = $20 and OT rate = $30, each overtime hour yields $10 of qualified pay.
2. Apply the deduction limits
You can deduct up to $12,500 (single) or $25,000 (joint) per year.
Deduction = min (Qualified Overtime, 12,500 or 25,000)
3. Find your new taxable income
Subtract the deduction from your gross income (all regular + overtime pay):
New Taxable Income = Gross Income – Deduction
4. Estimate your tax savings
Multiply the deduction by your marginal tax rate:
Tax Savings = Deduction × Tax Rate
Example: In a 22% bracket, each $1,000 of deductible overtime saves about $220 in federal tax.
For a visual walkthrough of these steps, watch this demo of the No Tax on Overtime Calculator:
No Tax on Overtime Calculation Examples
Here are a few sample scenarios to show how the deduction works in practice.
Each follows the same process: calculate the overtime premium, apply the $12,500 / $25,000 cap, subtract it from income, then compute tax savings.
Example 1 (Single, small overtime): Amy earns $20/hr and works 5 OT hours at $30/hr.
Overtime pay = $150; qualified overtime = $(30–20)×5 = $50.
She deducts $50, saving about $6 in federal tax at a 12% rate. (She still pays 15.3% payroll tax on all wages.)
Example 2 (Single, larger overtime): Bob earns $15/hr and works 40 OT hours at $22.50/hr.
Overtime pay = $900; qualified overtime = $(22.50–15)×40 = $300.
He deducts $300, saving about $66 at a 22% rate. He effectively pays federal tax on $600 of his $900 overtime.
Example 3 (Hitting the cap): Carla is a nurse earning $30/hr and works 1,000 OT hours at $45/hr.
Qualified overtime = $(45–30)×1,000 = $15,000.
She can deduct only $12,500 (the single cap). At a 22% rate, she saves about $2,750; the remaining $2,500 is taxed normally.
Who Qualifies for No Tax on Overtime
Not everyone is eligible. To qualify, you must be a non-exempt W-2 employee subject to FLSA overtime rules.
Your modified adjusted gross income (MAGI) — essentially your adjusted gross income with certain deductions and tax credits added back — must fall below thresholds: $150,000 (single) or $300,000 (joint) to avoid full phaseout.
The deduction is valid whether you itemize or take the standard deduction.
Employer reporting is required: payors must report “qualified overtime compensation” on your W-2 or equivalent.
Savings You Can Estimate with the No Tax on Overtime Calculator
Using the calculator, you can see how much you might save in federal income tax.
For instance, if you deduct the full $12,500 and your marginal tax rate is 22%, that yields $2,750 in tax savings.
Since fewer than 9% of tax filings are expected to qualify, according to Tax Policy Center estimates, the average eligible filer saves about $1,440.
This tool lets you test different overtime amounts, marginal rates and see how phaseouts affect your savings. It also helps you compare scenarios (e.g. working more overtime or hitting the cap) visually and quickly.
Federal vs State Rules on No Tax on Overtime
This federal deduction does not automatically change state tax laws.
States can choose whether to follow or reject the overtime exemption.
In states with no income tax (e.g. Florida, Texas, Washington, etc.), overtime is already untaxed at the state level.
Other states are considering similar breaks: for example, Illinois lawmakers have introduced bills to exclude overtime from state taxable income, and New Jersey is exploring a proposal to exempt overtime pay from state income tax.
North Carolina’s plan would even exempt tips and bonuses alongside overtime.
However, as of mid-2025 no state (besides those with no income tax) has yet fully enacted a permanent “no tax on overtime” rule.
No Tax on Overtime Calculator: Conclusion
The No Tax on Overtime Calculator helps eligible workers see how much they can save under the new law.
By deducting the overtime premium — up to $12,500 for single filers or $25,000 for joint filers — employees can lower their federal taxable income and increase take-home pay.
Running the numbers in the calculator, reviewing worked examples and keeping federal and state rules in mind makes it easier to understand your actual benefit.
While payroll and Social Security taxes still apply, the calculator shows how this deduction can provide meaningful relief for those who qualify, making overtime more rewarding during 2025–2028.
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