Count only hours over 40 in a workweek. California daily overtime under 40 weekly hours is not federal overtime.
What counts
The deduction covers the extra half of time and a half that federal law requires for hours over 40 in a workweek. At $20 an hour with 10 overtime hours, the qualified part is $10 an hour, so $100 for that week.
Overtime paid above one and a half times, or under a state daily rule, counts only up to that federal half. The regular part of the pay is not included.
Limits at a glance
| Item | Rule |
|---|---|
| Maximum deduction | $12,500, or $25,000 on a joint return |
| Income phase-out | $100 less for each $1,000 over $150,000 ($300,000 joint) |
| Tax years | 2025 through 2028 |
| Married couples | Must file jointly to claim it |
| Social Security number | Required on the return |
It lowers taxable income
A deduction is not a refund of tax. At a 12 percent bracket, a $5,000 deduction lowers federal income tax by about $600. This page does not model state tax.
Finding your number
IRS Notice 2025-69 lets people estimate the premium for 2025 from year-end pay data. If a statement shows one combined amount for hours over 40 paid at one and a half times, the notice allows using one third of that amount. Read the notice for your own situation.
Related calculators
Is overtime pay free of federal income tax?
No. Only the qualified premium, the extra half of time and a half, is deductible, up to the limits. Payroll taxes still apply.
Which years does it cover?
Tax years 2025 through 2028.
Who cannot claim it?
Married people who file separately cannot. A Social Security number is required on the return, and the deduction shrinks at higher incomes.
Does my state also skip tax on overtime?
This page estimates the federal deduction only. State rules are separate and differ.