Is Overtime Tax-Free in 2026?
Updated June 2026 · ~4 min read · By the FedCalc Editorial Team
The key word: "premium"
This is what trips most people up. "No Tax on Overtime" does not make your overtime paychecks tax-free. The deduction applies only to the premium portion — the extra amount above your normal rate that federal law requires for overtime.
Say your regular rate is $30/hour. An overtime hour pays $45 (time-and-a-half). The $15 premium is the deductible part — not the full $45. A quick rule of thumb: at 1.5×, the premium is about one-third of your total overtime pay.
What the deduction does — and doesn't — do
- Does: reduce your federal income tax on the premium, up to $12,500 (single) / $25,000 (joint), for 2025–2028.
- Doesn't: remove Social Security and Medicare (FICA) from your overtime, and doesn't touch the base hourly portion.
- Income limit: phases out by $100 per $1,000 of income above $150,000 (single) / $300,000 (joint).
- Eligibility: it's for federally-required (FLSA) overtime. If you're a salaried, exempt employee not paid time-and-a-half, you generally don't qualify.
How much will you actually save?
Your savings is the deductible premium times your tax rate. Example: a worker with a $4,000 overtime premium in the 12% bracket saves about $480; a higher earner with a $10,000 premium in the 22% bracket saves about $2,200. The exact figure depends on your bracket and the phase-out — our free overtime calculator works it out for you.
FAQ
Is overtime tax-free in 2026?
No — only the overtime premium is deductible from federal income tax, up to the cap. FICA still applies and the base portion isn't deductible.
How much can I deduct?
The premium only — about one-third of your total OT pay at 1.5× — up to $12,500 (single) / $25,000 (joint).
Do salaried workers qualify?
Generally no — the deduction covers federally-required (FLSA) overtime, which mostly applies to hourly, non-exempt workers.
Disclaimer: Educational, not tax advice. Based on IRC §225 and IRS guidance as of June 2026. FedCalc is independent and not affiliated with the U.S. government or IRS.