My Overtime Tax

You still pay Social Security, Medicare, and state tax on all overtime pay. For federal income tax, the One Big Beautiful Bill Act lets eligible workers deduct the premium half of FLSA overtime — up to $12,500 single or $25,000 married filing jointly — for tax years 2025 through 2028.

It is a federal income tax deduction, not an exemption. Only the premium portion of overtime required by the Fair Labor Standards Act qualifies: the extra half in time-and-a-half. Your employer keeps withholding as normal, and you claim the deduction when you file your return.

It depends on your overtime hours, pay rate, filing status, and tax bracket. A single filer earning $25/hour with 10 overtime hours a week has about $6,500 of qualified premium a year — worth roughly $1,430 at a 22% marginal rate. Use the calculator above for your numbers.

Yes. Overtime pay is still subject to Social Security, Medicare, and state/local taxes. The new law only creates a federal income tax deduction for the qualified premium portion, within the caps and income limits.

You can, because the deduction lowers your federal taxable income. Withholding does not change during the year unless you submit an updated Form W-4 accounting for your expected overtime deduction — otherwise the benefit arrives when you file, either as a larger refund or a smaller balance due.

Nonexempt employees under the Fair Labor Standards Act with a valid Social Security number. Married couples must file jointly. The deduction phases out above $150,000 MAGI single ($300,000 joint). Exempt salaried workers do not qualify. Most independent contractors and gig workers do not qualify either, because the deduction requires FLSA-qualified overtime — the rare exception is a worker treated as an independent contractor for tax purposes who is an employee under the FLSA, whose qualified overtime can be reported on Form 1099-NEC or 1099-MISC.