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no tax on overtime: what hourly workers actually keep

Taxes · Jun 8, 2026 · 3 min read

quick answer: "No Tax on Overtime" lets you deduct up to $12,500 of overtime pay ($25,000 married filing jointly) from federal income tax for 2025–2028. But it only covers the extra "half" of time-and-a-half — not your whole overtime check — and you still owe Social Security and Medicare (payroll tax) plus any state tax. It phases out over $150,000 of income ($300,000 joint). start free →

what the deduction actually does

The "No Tax on Overtime" rule comes from the 2025 federal tax law (the One Big Beautiful Bill). It lets you deduct up to $12,500 of qualified overtime pay from your federal income tax — $25,000 if you are married filing jointly. A deduction lowers the income your federal income tax is figured on; it does not hand the money back and it does not remove the other taxes that come out of your check.

It applies retroactively to all of 2025 and runs through 2028 unless Congress extends it, and it is an above-the-line deduction, so you can take it even if you do not itemize.

it only covers the extra "half"

This is the part headlines skip. "Qualified overtime" is just the premium — the extra half of time-and-a-half that federal law (the FLSA) requires. If your regular rate is $20 an hour and overtime pays $30, only the $10 premium per hour is the deductible part, not the full $30.

Regular rate $20/hr · overtime rate $30/hr
  10 overtime hours        → $300 overtime pay
  deductible "premium"     = 10 × $10 = $100
  your base $20/hr portion = $200 → not deductible

So the deduction is real, but it is smaller than "my overtime is tax-free" makes it sound.

what it does not do

Like "No Tax on Tips," the name oversells it. Here is what still comes out of your overtime:

Social Security and Medicare (payroll tax). Still withheld on every overtime hour — the deduction only touches federal income tax.
State and local income tax. If your state taxes income, it most likely still taxes your overtime.
It lands at tax time, not in your paycheck. Tax is still withheld from your checks through the year; you get the benefit when you file.

who qualifies

You have to be a non-exempt hourly worker who gets FLSA-required overtime. Salaried exempt employees who do not earn overtime do not qualify.
It phases out at higher incomes — over $150,000 ($300,000 married filing jointly), you get less or none of it.
You need a valid Social Security number, and if you are married you have to file jointly to claim it.

what this means for your take-home

If you pick up overtime, a slice of the premium comes back at tax time — but your paycheck still has payroll and state tax taken out as you earn it, so plan around the check you actually get. The cleanest way to avoid a surprise is to track what you really keep, hour by hour, instead of the gross the schedule promises.

track your real take-home →

frequently asked questions

is my overtime tax-free now?

No. You can deduct up to $12,500 of qualified overtime ($25,000 married filing jointly) from federal income tax for 2025–2028, but only the premium "half" of time-and-a-half counts, and Social Security, Medicare and state tax still apply.

does the deduction cover my whole overtime check?

No — only the extra "half" above your regular rate that the FLSA requires. If your regular rate is $20 and overtime is $30, only the $10 premium per hour is the deductible part.

do i still pay Social Security and Medicare on overtime?

Yes. The deduction only reduces federal income tax. Payroll tax (Social Security and Medicare) is still withheld on overtime, and your state may tax it too.

how much can i deduct?

Up to $12,500 of qualified overtime if single, or $25,000 if married filing jointly. It phases out once your income passes $150,000 ($300,000 joint).

how long does no tax on overtime last?

It applies retroactively to 2025 and runs through 2028 unless Congress extends it.

facts checked Jun 8, 2026. general guidance, not tax or legal advice.