The OBBBA "No Tax on Overtime" deduction is one of the most commonly miscalculated pieces of the 2025 tax law — mostly because people plug in their entire overtime paycheck instead of just the premium portion. Here's what actually counts, how the phase-out works, and a free No Tax on Overtime calculator that gets the math right.
What counts as qualified overtime pay
Only the FLSA Section 7 overtime premium is deductible — not your full overtime wage. If you're paid "time-and-a-half" for overtime hours, the deductible portion is just the extra "half," not the full 1.5x rate. A worker earning $20/hour who works overtime at $30/hour can only deduct the $10/hour premium, not the full $30. This is the single biggest source of overestimated savings when people use this deduction, since most people think in terms of their full overtime paycheck.
No tax on overtime W-2 box 12 code TT
Starting with tax year 2026, employers are required to separately report qualified overtime compensation on Form W-2, box 12, using code TT — tax year 2026 is the first year this breakout is mandatory. That figure is what you'll actually use to fill in this deduction on your return, rather than estimating from pay stubs.
No tax on overtime MAGI phase out
The cap is $12,500 for single/head-of-household filers and $25,000 for joint filers — note it's not the same for both, unlike the tips deduction. It phases out $100 for every $1,000 your MAGI exceeds $150,000 (single) or $300,000 (joint), reaching zero at $275,000 MAGI for single filers and $550,000 for joint filers. One more wrinkle: if you're married, you must file jointly to claim this deduction at all — filing separately disqualifies it completely, and workers using an ITIN instead of a Social Security number aren't eligible either.
This deduction doesn't touch payroll tax
Like the tips deduction, this only reduces federal income tax — Social Security and Medicare withholding on your overtime pay is unaffected, and it runs only through tax year 2028 unless Congress extends it.
Try the No Tax on Overtime Calculator → · Also earn tips? See the No Tax on Tips Calculator.
Sources: IRS, "What to know about the No Tax on Overtime deduction"; Bipartisan Policy Center, "No Tax on Overtime in the 2026 Filing Season"; TurboTax, "No Tax on Overtime Explained." This is general information, not tax advice — confirm your specific situation with a tax professional or the IRS.
