TAX YEAR 2026/2027 READY Statutory Rules Active: One Big Beautiful Bill Act (2026–2028)
Verified: September 2026
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No-Tax-on-Overtime Calculator (2026–2027)

Under the One Big Beautiful Bill Act, only the 0.5x premium portion ("the half") in time-and-a-half is deductible, up to $12,500 (Single) or $25,000 (Joint). Your base wage remains taxable.

tune Paycheck & Overtime Inputs

FLSA 1.5x Premium Rule
$32/hr
$
10 hrs/wk
50 weeks
For $150k/$300k Phaseout test
$
Tax Savings Breakdown 2026/2027 Schedule 1
Estimated Annual Federal Tax Savings
$0
Extra take-home pay: $0 more per OT hour
Total Overtime Pay (1.5x): $0
Base wage portion (1.0x - Taxable): $0
Premium portion (0.5x - Qualified): $0
Qualified Overtime Deduction: $0
W-2 Box 12 Code TT Estimate: $0

Statutory Mathematical Steps:

  1. Regular Rate: $/hr. Overtime Rate (1.5x) = $/hr.
  2. Exempt Premium ("the half"): $ × 0.5 = $/hr.
  3. Annual Premium Earned: OT hrs × $ = .
  4. Statutory Cap Applied: Limited to for filing status.
  5. MAGI Phaseout: Phased out if total income exceeds $.
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How Form W-2 Box 12 Code TT Interacts With Your Tax Return

Starting in tax year 2026, employers report your total qualified overtime compensation in Box 12 of Form W-2 under Code TT. This figure represents the premium portion (the 0.5x multiplier) paid to you under statutory FLSA rules.

When preparing your Form 1040 (or using tax software like TurboTax, H&R Block, or FreeTaxUSA), the software will read Box 12 Code TT, apply the $12,500 / $25,000 statutory cap, verify your MAGI against the $150,000 / $300,000 phaseout thresholds, and deduct the eligible amount on Schedule 1 (Adjustments to Income).

policy IRS Guidance: Qualified Overtime Compensation IRS Statutory Citation
Employers must calculate Box 12 Code TT strictly from overtime premium pay records. Overtime paid to exempt administrative, executive, or professional personnel under 29 C.F.R. Part 541 does not qualify.
Notice 2025-W2 • IRC § 62(a)(22) Verify on IRS.gov open_in_new

Overtime Tax Deduction FAQs

How is the "no-tax-on-overtime" deduction calculated?

The deduction only covers the 0.5x premium portion (the "half" in time-and-a-half). For example, if your base pay is $30/hr and your overtime rate is $45/hr, only the $15/hr premium is eligible for the deduction up to the statutory cap.

What is the maximum overtime tax deduction I can claim?

The statutory cap is $12,500 per year for Single, Head of Household, and Married Filing Separately filers. For Married Filing Jointly couples, the cap is $25,000 per year.

Does the overtime deduction phase out if I earn too much?

Yes. The deduction begins phasing out at $150,000 MAGI for single taxpayers ($300,000 for married couples filing jointly). It phases out completely over a $25,000 window ($50,000 for joint returns).

How will my employer report this on my W-2?

Beginning in tax year 2026, employers report qualified overtime compensation in Box 12 of your Form W-2 using Code TT.