Overtime pay
The week's pay, and the premium half that actually qualifies for the 2026 overtime deduction — not the whole overtime wage.
Total pay this week
$1,144
Deduction, annualizedpremium × weeks, capped & phased
$4,576
Half the wage, not the whole wage
"Time-and-a-half" is your normal rate plus a 50% premium. The 2026 no-tax-on-overtime deduction only shelters that premium — the extra half — not the base rate you'd have earned for the same hour anyway. A $22/hour worker earning $33/hour on overtime gets a $11/hour qualifying premium, not $33. Annualized, capped at $12,500 single ($25,000 married), and reduced 10 cents on the dollar once your MAGI clears $150,000 ($300,000 married) — gone entirely $125,000/$250,000 past that.
premium = (multiplier − 1) × rate × overtime hours deduction = min(premium × weeks, cap) − 10% × (MAGI − threshold) Assumptions on the counter
- Assumes every overtime hour is FLSA-qualifying time-and-a-half-eligible overtime, not a bonus or shift differential mislabeled as overtime.
- MAGI is approximated as this job's annualized gross plus "other income" — real MAGI has add-backs this doesn't model.
- State tax treatment of overtime varies and isn't modeled; this is federal only.
Questions people ask
Is my whole overtime paycheck tax-free now?
No — a common misreading. Only the premium portion — the extra half of "time-and-a-half," not the full 1.5x wage — qualifies for the deduction, and only up to $12,500 a year single ($25,000 married), phased out above $150,000/$300,000 MAGI. The straight-time portion of overtime hours is taxed exactly like regular wages, same as it always was.
How is the qualifying premium calculated?
It's the overtime rate minus your regular rate, times overtime hours. At $22/hour and time-and-a-half, that's $11/hour — not the full $33/hour overtime rate — for every overtime hour worked.
What if I work double-time on a holiday?
Set the multiplier to 2 (or whatever your employer pays). The premium is still just the amount above your straight-time rate — at double-time, that is the full extra 1x, a bigger qualifying premium per hour than time-and-a-half.
Does this expire?
Yes — it is a temporary deduction for tax years 2025 through 2028 under the One Big Beautiful Bill Act, not a permanent change to how overtime is taxed.