Overtime Tax Exemption Calculator
Estimate your federal income tax deduction from the OBBB qualified overtime premium deduction. Only the FLSA premium portion qualifies — not your entire overtime check.
As a new overtime tax rules calculator, this tool shows how OBBB §70202 created an above-line federal income tax deduction for the premium portion of FLSA-required overtime compensation for tax years 2025–2028. The maximum deduction is $12,500 for Single/HoH/MFS filers and $25,000for MFJ. The “premium portion” is the extra 50% in a 1.5× rate: for total overtime pay of $9,000 at 1.5×, the premium is $3,000 (one-third), not $9,000.
Phase-out: the deduction is reduced by $100 per $1,000 of MAGI above $150,000 (Single) or $300,000 (MFJ) per OBBB §70202. The deduction is for federal income tax only — FICA (Social Security 6.2% + Medicare 1.45%) is unchanged on all wages including overtime (IRC §3101, per IRS Notice 2025-69).
Worked example: single worker, $9,000 total 1.5× overtime, $60,000 MAGI, 22% rate. Premium = $9,000 / 3 = $3,000. Below $12,500 cap, below $150,000 phase-out threshold. Allowed deduction = $3,000. Tax savings = $3,000 × 22% = $660.
How it's calculated
How to use this calculator
- Select your filing status.
- Enter your total annual overtime compensation and select your overtime multiplier (1.5× is most common).
- Enter your MAGI to check the phase-out.
- The calculator isolates the premium portion and applies the deduction caps.
Formula and assumptions
premiumPortion = totalOT × (0.5 / multiplier) ← FLSA cap: 0.5× on regular rate For 1.5x: premium = totalOT / 3 (0.5 / 1.5) For 2.0x: premium = totalOT / 4 (0.5 / 2.0) ← not totalOT / 2 cap = $12,500 (Single/HoH) or $25,000 (MFJ) phaseOut = ceil(max(0, MAGI − threshold) / 1,000) × 100 allowedDeduction = max(0, min(premium, cap) − phaseOut) threshold = $150,000 (Single/HoH) or $300,000 (MFJ)
- FLSA required
- Only FLSA-required overtime qualifies; state-only or CBA overtime may not
- FLSA premium cap
- Deductible premium is limited to the FLSA-mandated 0.5× portion of the regular rate, regardless of actual pay multiplier
- Sunset
- Deduction available 2025–2028
- MFS ineligible
- Married Filing Separately cannot claim
- FICA
- Still subject to payroll tax
Worked example
Single worker, $9,000 total overtime at 1.5×, $60,000 MAGI, 22% rate
Limitations
- Only FLSA-required overtime qualifies — not all overtime pay.
- Deductible premium is capped at the FLSA-mandated 0.5× portion; double-time (2.0×) pay yields totalOT / 4, not totalOT / 2, because only the statutory overtime premium is deductible.
- Premium portion calculation is an estimate when employer has not separately reported it.
- Does not reduce FICA liability.
- Sunsets after 2028 unless extended.
- QSS (Qualifying Surviving Spouse) is treated as Single for cap and threshold; verify OBBB §70202 for your status.
- Educational estimate only — not professional tax advice.
Frequently asked questions
The OBBB overtime deduction allows workers to deduct the FLSA overtime premium portion from federal taxable income — up to $12,500 (Single) or $25,000 (MFJ) per year. You cannot deduct your entire overtime paycheck — only the extra premium portion.
Recent updates
- May 2026Formula corrected: FLSA cap applied to multipliers above 1.5× (FLSA mandates 0.5× premium only; 2.0× now yields totalOT / 4, not totalOT / 2); phase-out uses 'fraction thereof' rounding (Math.ceil); schema hardened against non-finite inputs; monetary outputs rounded to cents.
- Jul 2025OBBB §70202 enacted; overtime premium deduction caps confirmed at $12,500 Single / $25,000 MFJ.
- May 2025IRS Notice 2025-69 issued on FLSA qualifying overtime premium definition; calculator notes updated.
- Apr 2025Pre-launch draft based on OBBB bill text; premium-portion formula locked on statute enactment.