Estimate your federal tax savings under the OBBBA overtime deduction — and see exactly what FICA and state taxes still apply to your overtime premium pay.
Sources: IRS OBBBA guidance · IRS FS-2026-01 (qualified overtime Q&A)
The table below shows estimated federal tax savings at common income levels. All figures use 2026 OBBBA brackets and standard deductions, calculated with the same engine as the interactive tool above. Enter your OT premium — the extra 0.5× portion — not your full overtime pay.
| Base Wages | OT Premium (0.5×) | Filing Status | State | OT Deduction | Federal Savings |
|---|---|---|---|---|---|
| $40,000 | $8,000 | Single | Texas (no income tax) | $8,000 | $960 |
| $60,000 | $12,500 | Single | New York (non-conforming) | $12,500 (at cap) | $2,100 federal only |
| $80,000 | $25,000 | Married Filing Jointly | Florida (no income tax) | $25,000 (at MFJ cap) | $3,000 |
| $140,000 | $20,000 | Single | California (non-conforming; daily OT note) | $11,500 (phase-out applied) | $2,760 |
Federal savings shown only. FICA taxes (Social Security + Medicare) still apply to all overtime pay. State figures depend on each state's conformity status. Case 4 phase-out: $160k total income, $10k over $150k threshold, reduces $12,500 cap by $1,000 → $11,500 deduction.
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The no tax on overtime deduction is an above-the-line deduction under IRC §225, introduced by the One Big Beautiful Bill Act. It directly reduces your federal taxable income — but only for the overtime premium pay, not your total overtime wages.
When you work overtime, your employer pays you 1.5× your regular rate. The deduction applies only to the extra 0.5× — the premium half. The regular 1.0× remains ordinary wages and is fully taxable.
The overtime deduction reduces income tax only. The following still apply in full:
The OBBBA overtime deduction is available only to workers whose overtime is required by the Fair Labor Standards Act (FLSA). This is a critical eligibility requirement that excludes a large portion of the workforce.
California law requires overtime pay for hours worked beyond 8 in a single day, even if total weekly hours are under 40. This daily overtime does not qualify for the federal OBBBA deduction — only FLSA-mandated weekly overtime (hours over 40 per week) qualifies. California workers earning daily OT but no weekly OT may have no qualifying premium at all.
Additionally, California has not adopted the OBBBA overtime deduction for state income tax, so California workers benefit from the federal deduction only on qualifying weekly OT hours.
The table below compares federal income tax for a single filer at various income levels, showing the savings from the overtime premium deduction. State taxes and FICA are excluded.
| Total Income | OT Premium | Without Deduction | With Deduction | Savings |
|---|---|---|---|---|
| $20,000 | $5,000 | $390 | $0 | $390 |
| $40,000 | $8,000 | $3,580 | $2,620 | $960 |
| $60,000 | $12,500 | $7,120 | $5,020 | $2,100 |
| $80,000 | $12,500 | $8,770 | $6,020 | $2,750 |
Single filer, 2026 OBBBA federal brackets and $16,100 standard deduction. OT premium column shows the 0.5× qualifying portion only. At $80k, the deduction hits the $12,500 single cap.
State conformity for the overtime deduction is significantly lower than for the tips deduction. As of June 2026, most states with income tax have not adopted the OBBBA overtime deduction — meaning overtime premium pay remains fully taxable at the state level in most jurisdictions.
Workers in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming pay no state income tax on any wages, including overtime. The OBBBA deduction is irrelevant for state purposes in these states.
Montana has rolling conformity to the Internal Revenue Code, which picks up the OBBBA overtime deduction automatically. Montana workers can deduct the overtime premium from both federal and Montana state taxable income.
California, New York, New Jersey, Illinois, Connecticut, Hawaii, Colorado, and Washington D.C. have explicitly not adopted the OBBBA overtime deduction. Workers in these states must add back the federal deduction on their state return, and overtime premium pay is fully taxable at the state level.
The majority of states have not issued formal guidance on the overtime deduction as of June 2026. The situation is evolving as state legislatures work through the 2025–2028 window. Always verify the current position with your state's Department of Revenue before filing.
Use our US state income tax calculators to see your full state tax picture alongside the federal estimate.
The no tax on overtime deduction is an above-the-line deduction introduced by the One Big Beautiful Bill Act (OBBBA), codified as IRC §225. It allows eligible employees to deduct the overtime premium portion of their pay — the extra 0.5× hourly rate required by the FLSA for hours over 40 per week — from their federal taxable income. The deduction reduces income tax only; Social Security and Medicare taxes still apply to all overtime pay.
Single filers can deduct up to $12,500; married filing jointly filers can deduct up to $25,000. These limits apply to the FLSA overtime premium — the extra half-time portion — not your total overtime wages. The deduction phases out by $100 for every $1,000 your modified adjusted gross income exceeds $150,000 (single) or $300,000 (MFJ), and is fully eliminated at $275,000 (single) or $550,000 (MFJ).
No. The OBBBA overtime deduction reduces federal income tax only. Social Security (6.2% employee) and Medicare (1.45%) taxes continue to apply to all overtime pay, including the premium portion. If your total income exceeds $200,000 (single) or $250,000 (MFJ), the 0.9% Additional Medicare Tax also applies. Our calculator shows FICA amounts separately so you can see the full picture.
Only the overtime premium required by the Fair Labor Standards Act (FLSA) qualifies — specifically, the extra 0.5× your regular hourly rate for hours worked beyond 40 in a workweek. The full 1.5× overtime rate does not qualify entirely: only the premium half does. Voluntary overtime pay above regular wages paid for other reasons, discretionary bonuses, and double-time pay do not qualify as FLSA overtime premium. Per IRS FS-2026-01, the deduction applies to overtime from covered FLSA employment.
Workers who are exempt from the FLSA overtime rules — including most salaried professionals, executives, administrators, and certain highly compensated employees — do not qualify. The overtime premium must arise from FLSA-mandated overtime. Employees who receive 'overtime' outside FLSA coverage, such as those paid a fixed salary that already accounts for all hours, generally cannot claim the deduction. Self-employed individuals and independent contractors are also excluded, as they are not FLSA-covered employees.
The deduction applies to tax years 2025 through 2028 — four tax years. It sunsets after the 2028 tax year unless Congress acts to extend or make it permanent. The last year to claim it is on your 2028 return, filed in 2029. Our calculator reflects the current 2026 rules and deduction amounts.
The maximum deduction ($12,500 single or $25,000 MFJ) reduces by $100 for every $1,000 your modified adjusted gross income (MAGI) exceeds $150,000 (single) or $300,000 (MFJ). For example, a single filer with $162,000 MAGI would face a phase-out of $1,200 (12 × $100), reducing their maximum deduction from $12,500 to $11,300. At $275,000 (single) or $550,000 (MFJ), the deduction phases out entirely.
California's daily overtime law — which requires 1.5× pay for hours worked beyond 8 in a single day, even if total weekly hours are under 40 — does NOT qualify for the federal OBBBA deduction. The deduction is tied to FLSA-defined overtime (hours over 40 per week), not state overtime laws. Only the FLSA weekly overtime premium earned in California qualifies for the federal deduction. Additionally, California has not adopted the OBBBA deduction for state income tax purposes.
As of June 2026, state conformity for the overtime deduction is limited compared to the tips deduction. The nine states with no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) have no state income tax on any wages, making the deduction irrelevant at the state level. Montana has confirmed conformity. Most other states, including California, New York, New Jersey, Illinois, Connecticut, Hawaii, Colorado, and Washington D.C., have not adopted the deduction. Check your state's Department of Revenue for the latest status.
The qualifying overtime premium is your regular hourly rate × 0.5 × the number of FLSA overtime hours worked. Example: if your regular rate is $20/hour and you worked 200 hours of overtime, your premium is $20 × 0.5 × 200 = $2,000. This is the amount you enter in our calculator — NOT the full $30/hour paid for those hours. The remaining 1.0× of your regular rate is ordinary wages, not a qualifying premium. Your employer should be able to provide this breakdown.
Disclaimer: This calculator is for educational and informational purposes only. It does not constitute tax, legal, or financial advice. Results are estimates based on 2026 rates published by the IRS under the One Big Beautiful Bill Act. Actual tax liability depends on your individual circumstances, FLSA coverage status, filing status, and state of residence. The deduction applies only to FLSA-mandated overtime premium pay — California daily overtime does not qualify. State conformity information reflects best available data as of June 2026 and may change as state legislatures act. Always consult a qualified CPA, enrolled agent, or tax professional before making financial decisions.
Authored by: Daniel · CountryTaxCalc | Last Updated: June 2026
Primary sources: IRS — OBBBA: No Tax on Tips and Overtime · DOL — Fair Labor Standards Act