BEHIND THE NUMBERSThe deduction covers the FLSA-required overtime premium, usually the extra half of your regular rate. Your full overtime paycheck does not become tax-free.
Start with who qualifies, then see what counts as qualified overtime.
01
How the overtime deduction is calculated
Start with your overtime pay, then separate the part required by federal overtime law. For a typical eligible hourly worker, qualified compensation is the regular rate multiplied by overtime hours and one-half. Paying double time raises gross pay but does not double this qualifying premium.
The annual deduction is limited to $12,500 for an eligible non-joint return or $25,000 for a joint return. It is reduced as modified adjusted gross income, or MAGI, rises above $150,000 or $300,000, respectively.
THE FORMULAGross overtime pay = regular hourly rate × overtime hours per week × weeks × pay multiplier
- Find the FLSA-required premium within your overtime pay.
- Apply your filing status limit, then the income phaseout.
- Estimate the change in federal income tax after the deduction.
02
A deduction and tax savings are different amounts
A deduction reduces income subject to federal income tax. The savings depend on the tax rates that would otherwise apply to that income. A deduction can cross tax brackets, so multiplying it by one marginal rate is only a shortcut.
Use the estimate to plan, then reconcile it with your return. MAGI is not always the same as salary or take-home pay. State income tax, Social Security, Medicare, credits, and other details can change your final result.
03
Have your W-2? Check code TT
For tax year 2026 onward, employers report qualified overtime in Form W-2, box 12, code TT. Use the correct reported amount when preparing your return; your hours-based estimate is a planning aid. An omitted or understated amount requires an employer-issued W-2c before you can include the additional amount.
Tax year 2025 had separate transition relief. If no qualified amount was provided for that year, IRS guidance allows specified reasonable methods using payroll records. That relief does not carry over to 2026.