No Tax on Overtime Deduction Calculator
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What counts as “qualified overtime”
Only the FLSA-required overtime premium qualifies – that is the half-time portion of time-and-a-half pay. If your regular rate is $30/hour and you earn $45/hour on overtime, the deductible amount is $15/hour of overtime worked, not the full $45.
Overtime paid under collective bargaining agreements or company policy that exceeds the FLSA requirement (for example, double-time after 12 hours in California) is only partially qualified – the FLSA premium portion is what counts. Most W-2 forms will need a new box or codes for tax year 2025 reporting. The IRS issued initial guidance in late 2025 and is expected to update Form W-2 instructions accordingly.
The phaseout
Deduction reduces by $100 for every $1,000 of MAGI above $150,000 single / $300,000 MFJ. The deduction reaches zero at $275,000 single / $550,000 MFJ. For most NYC professionals working overtime hours, the deduction is fully phased out before the cap matters.
Important: this is a federal deduction only. New York State has not adopted it. Your NY State tax bill on overtime is unaffected. Payroll tax (FICA – 7.65 percent) is also unchanged – Social Security and Medicare still apply to overtime pay.
Who actually benefits
The provision targets hourly workers under the MAGI thresholds – nurses, first responders, manufacturing, restaurant workers. Salaried employees who are FLSA-exempt do not qualify. Independent contractors do not qualify (no FLSA overtime). For W-2 hourly workers earning between $40,000 and $120,000 with significant overtime, the tax savings can run $1,000 to $2,800 a year at the federal level.
Sources: DOL Overtime page, IRS guidance on the OBBBA tip and overtime deductions (issued late 2025). The IRS is expected to release a worksheet for reconciling the deduction on the 2025 Form 1040.
Working overtime in healthcare or production?
We work with nurses, hospital staff, and TV/film/production crew who run heavy overtime. The deduction interacts with quarterly estimates and W-4 withholding – worth a conversation.