Only the premium is deductible
The overtime deduction is narrower than many headlines suggest. When a non-exempt employee works more than 40 hours in a workweek, the Fair Labor Standards Act requires pay of at least one and a half times the regular rate for the extra hours. The deduction covers the "half" — the amount above the regular rate — not the entire overtime paycheck. Someone earning $30 an hour who works 45 hours receives $225 of overtime pay for the five extra hours, of which $75 is the qualified premium. Over 50 such weeks that is $3,750.
Three ways to enter your numbers
Choose the input that matches your records. If you know your hourly rate and typical overtime hours, the calculator multiplies rate × 0.5 × hours × weeks. If your pay stubs show total overtime pay at time-and-a-half, the qualified premium is one third of that total. Starting with 2026 wages, employers are expected to report qualified overtime separately, so the most reliable figure is the amount your employer provides; use the third option for that.
Caps and phase-out
The deduction is capped at $12,500 per year, or $25,000 on a joint return. It phases out by $100 for each full $1,000 of modified AGI above $150,000 ($300,000 joint) — the same rounding the tips deduction uses. A single filer with $175,999 of MAGI has $25,999 of excess, which rounds down to 25 thousands and a $2,500 reduction.
What does not qualify
Double time paid because a state requires daily overtime (California's rule for hours over 8 in a day, for example) qualifies only to the extent the federal 40-hour rule would also have required a premium. Contractual premiums for weekend or holiday work that are not FLSA overtime do not count. Salaried employees classified as exempt under the FLSA do not have qualified overtime even if their employer pays them extra for long weeks. Married people must file jointly, and a valid Social Security number is required.
Turning the deduction into tax savings
Because the deduction reduces taxable income, the dollar benefit is roughly the deduction times your top bracket rate. A $3,750 deduction at 22% saves about $825 of federal income tax. It does not change Social Security or Medicare tax withheld from overtime, and it does not change your AGI, so AGI-based credits are unaffected. To see the effect of several deductions together, use the combined Schedule 1-A calculator.