No Tax on Overtime Calculator

How the No Tax on Overtime Deduction Works

A comprehensive guide to understanding the "One Big Beautiful Bill Act" overtime tax deduction, including step-by-step calculation logic, eligibility requirements, and real-world examples.

Based on H.R.1, Section 70202 - One Big Beautiful Bill Act
Policy Overview

Key Facts

  • Effective for tax years 2025-2028
  • Above-the-line deduction (not exemption)
  • Only applies to federal income tax
  • FICA taxes still apply to all overtime

Deduction Limits

Single Filers:$12,500
Married Filing Jointly:$25,000
Income Eligibility Cap:$160,000

Step-by-Step Calculation Process

1
Calculate Total Overtime Pay

Under the Fair Labor Standards Act (FLSA), overtime is paid at 1.5 times the regular rate for hours worked over 40 per week.

Formula:

Overtime Rate = Regular Rate × 1.5
Annual Overtime Pay = Overtime Rate × Weekly Overtime Hours × Weeks Worked

Example:

Regular Rate: $25.00/hour
Overtime Rate: $25.00 × 1.5 = $37.50/hour
Weekly Overtime: 8 hours
Weeks Worked: 50 weeks
Annual Overtime Pay: $37.50 × 8 × 50 = $15,000
2
Calculate Eligible Overtime Premium (Critical!)

The deduction applies only to the "premium" portion - the extra 50% you earn beyond your regular rate.

Formula:

Premium Rate = Regular Rate × 0.5
Annual Premium = Premium Rate × Weekly Overtime Hours × Weeks Worked

Example (continued):

Premium Rate: $25.00 × 0.5 = $12.50/hour
Annual Premium: $12.50 × 8 × 50 = $5,000
Note: Out of $15,000 total overtime pay, only $5,000 is eligible for the deduction
3
Apply Maximum Deduction Limits

The law caps the maximum deduction amount based on filing status.

Limits:

Single Filers:
Maximum $12,500 per year
Married Filing Jointly:
Maximum $25,000 per year

Example (continued):

Annual Premium: $5,000
Filing Status: Single (limit $12,500)
Eligible Amount: min($5,000, $12,500) = $5,000
4
Calculate Income Phase-out Reduction

The deduction phases out for higher-income earners to target middle-income workers.

Phase-out Thresholds:

Single Filers:
Starts at $150,000 MAGI
Married Filing Jointly:
Starts at $300,000 MAGI
Reduction Formula:
Reduction = floor((Income - Threshold) / $1,000) × $100

Example Scenarios:

Scenario A: Income $75,000 (Single)
Below threshold → No reduction → $0
Scenario B: Income $155,000 (Single)
Excess: $155,000 - $150,000 = $5,000
Reduction: floor($5,000 / $1,000) × $100 = $500
5
Calculate Final Deduction Amount

Subtract any phase-out reduction from the eligible amount.

Formula:

Final Deduction = max(0, Eligible Amount - Phase-out Reduction)

Example (continued):

Eligible Amount: $5,000
Phase-out Reduction: $0 (income $75,000)
Final Deduction: max(0, $5,000 - $0) = $5,000
6
Calculate Tax Savings

Multiply the final deduction by your marginal tax rate to get actual tax savings.

Formula:

Tax Savings = Final Deduction × Marginal Tax Rate

Example (continued):

Final Deduction: $5,000
Marginal Tax Rate: 22% (for $75,000 income, single filer)
Annual Tax Savings: $5,000 × 22% = $1,100
Per paycheck savings (bi-weekly): $1,100 ÷ 26 = $42.31
Eligibility Requirements

✓ Must Have

  • Non-exempt employee status (eligible for FLSA overtime)
  • Valid Social Security Number
  • Annual income under $160,000
  • Overtime paid according to FLSA requirements

⚠️ Important Notes

  • Only applies to federal income tax (FICA taxes still apply)
  • State overtime rules don't qualify for federal deduction
  • Temporary provision (2025-2028 tax years only)
  • Employer still withholds taxes on all overtime pay
Real-World Scenarios

Scenario 1: Fully Eligible

Profile: Manufacturing worker
Income: $60,000
Hourly Rate: $20/hour
Overtime: 10 hours/week, 50 weeks
Premium: $5,000
Deduction: $5,000
Tax Savings: ~$600/year

Scenario 2: Partially Eligible

Profile: Senior technician
Income: $155,000
Hourly Rate: $50/hour
Overtime: 5 hours/week, 48 weeks
Premium: $6,000
Phase-out: -$500
Deduction: $5,500
Tax Savings: ~$1,320/year

Scenario 3: Not Eligible

Profile: Management consultant
Income: $180,000
Status: Exempt employee
Reason: Income exceeds $160,000 cap
Deduction: $0
Tax Savings: $0

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Important Disclaimer

This information is provided for educational purposes only and should not be considered professional tax advice. The "One Big Beautiful Bill Act" is new legislation, and implementation details may change as the IRS provides additional guidance. Tax laws are complex and individual circumstances vary. For personalized advice regarding your specific tax situation, please consult with a qualified tax professional.

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