How much of your overtime pay is tax-free?

Not exactly — the "no tax on overtime" deduction (26 U.S.C. §225, from the One Big Beautiful Bill Act) is a federal income-tax deduction, not an exemption from tax itself. It only covers the FLSA "half" premium — the extra amount on top of straight time, not your whole overtime paycheck — and it is capped at $12,500 for single filers ($25,000 married filing jointly). Social Security and Medicare are still withheld on the full amount, and it only applies for tax years 2025 through 2028.

Only the FLSA half-premium — the extra half-time paid on top of your regular rate for hours over 40 in a week. If your pay stub shows one combined figure at time-and-a-half, the qualified amount is one-third of that line, not the whole thing.

The maximum deduction shrinks by 10% of modified adjusted gross income (MAGI) over $150,000 for single filers or $300,000 for joint filers. A single filer at $200,000 MAGI, for example, has their $12,500 cap reduced by $5,000 (10% of the $50,000 excess) to $7,500 — the cap does not reach zero until MAGI hits $275,000.

No. 26 U.S.C. §225(e) disqualifies a married-filing-separately return from the deduction entirely — it is not a smaller cap, it is a $0 cap. Only a joint return unlocks the $25,000 married cap.

Only if you are FLSA-covered and non-exempt — meaning your employer is legally required to pay you overtime under the Fair Labor Standards Act. Many salaried roles are exempt from FLSA overtime entirely and would not qualify, regardless of what a pay stub calls a payment. This calculator does not verify FLSA-exempt status; it estimates the deduction assuming the premium you enter is FLSA-qualified.

Yes. The OBBBA overtime provision only reduces federal income tax — it does not change Social Security or Medicare withholding, which still apply to every dollar of overtime pay exactly as before.

On a $75,000 salary with a $6,000 qualified overtime premium, the full amount is deducted (well under the $12,500 single cap and the income phase-out threshold), which is estimated to save about $1,320 in federal income tax for this example.

The One, Big, Beautiful Bill Act (P.L. 119-21) added 26 U.S.C. §225, a temporary above-the-line federal deduction for qualified overtime compensation, for tax years 2025 through 2028. IRS Notice 2025-69 provides the interim compliance guidance.