Here is how to claim no tax on overtime for 2026. Find the amount in box 12, code TT of your Form W-2. Enter it in Part III of Schedule 1-A and file it with your Form 1040. You can deduct up to $12,500, or $25,000 if married filing jointly. Only the extra “half” of time-and-a-half counts, and the deduction shrinks once your income passes $150,000.
The deduction comes from the One Big Beautiful Bill Act, the 2025 tax law that IRS.gov also calls the Working Families Tax Cuts. It covers tax years 2025 through 2028. It lowers your income tax. It does not change Social Security or Medicare tax on your pay.
Last updated October 27, 2026. Amounts are for your 2026 tax return, filed in 2027. The 2026 Schedule 1-A is still an IRS draft, so line numbers could change.
Want the big picture first? See the overtime section of our 2026 tax changes guide, or the key numbers for your 2026 return on one page.
No tax on overtime at a glance
| The deduction | |
|---|---|
| Most you can deduct, single | $12,500 |
| Most you can deduct, married filing jointly | $25,000 |
| What counts | The premium “half”of FLSA-required overtime |
| Income limit | |
| Phase-out starts, single | $150,000 MAGI |
| Phase-out starts, married filing jointly | $300,000 MAGI |
| How fast it shrinks | $100 per $1,000of MAGI over the limit |
| Filing | |
| Where it shows on your 2026 W-2 | Box 12, code TT |
| Form you file | Schedule 1-A, Part III |
| Years it applies | 2025 to 2028 |
What counts as qualified overtime?
Qualified overtime is the part of your overtime pay that is above your regular rate, when the overtime is required by the Fair Labor Standards Act (FLSA). Most hourly workers get time-and-a-half for hours over 40 in a workweek. The “time” part is your normal pay. Only the “half” is qualified overtime.
Keep these rules in mind:
- It must be overtime the FLSA requires. Overtime paid only because of a state law, a union contract or company policy does not count.
- If your employer pays double time, only the amount the FLSA requires counts. That is still just the “half.”
- If you are exempt from FLSA overtime, such as many salaried managers, your overtime does not qualify.
- The deduction is for income tax only. Your overtime is still subject to Social Security and Medicare tax.
Not sure if you are covered by the FLSA? The U.S. Department of Labor explains it in its overtime pay guide.
What will your 2026 W-2 show?
Starting with 2026, employers must report qualified overtime on your Form W-2 in box 12 with code TT. That number is the total premium “half” you were paid for the year. It can be more than you are allowed to deduct. Schedule 1-A applies the limits.
This is a change from 2025. For 2025, employers did not have to show qualified overtime separately, so many people had to figure it out on their own. For 2026, there is no such relief. You can only deduct what is reported in box 12, code TT.
What if the number on your W-2 looks wrong?
- Too low or missing: ask your employer for a corrected W-2, called a Form W-2c. Without it, you can only use the amount shown.
- Too high: you can only deduct the overtime you were actually paid, not the bigger number.
- No W-2 at all: a substitute W-2 (Form 4852) cannot be used for this deduction.
In rare cases, a worker who is an employee under the FLSA but treated as a contractor for tax purposes gets the amount on Form 1099-NEC (box 1d) or Form 1099-MISC (box 14) instead.
Who can claim the overtime deduction?
You can claim it if all of these are true:
- You were paid FLSA-required overtime in the tax year.
- It is reported to you, usually on your W-2 in box 12, code TT.
- You, or your spouse who earned the overtime, have a valid Social Security number on the return.
- If you are married, you file a joint return. Married filing separately can’t claim it.
You can take this deduction whether you itemize or take the standard deduction. See the what’s new list on our Tax Information page for the other new deductions.
How much overtime can you deduct?
You can deduct up to $12,500 of qualified overtime each year. On a joint return, the limit is $25,000 for the two of you together.
The deduction gets smaller once your modified adjusted gross income (MAGI) goes over $150,000, or $300,000 if married filing jointly. For most people, MAGI is the same as the adjusted gross income on Form 1040. For every full $1,000 over the limit, the deduction drops by $100.
| Filing status | Cap | Phase-out starts |
|---|---|---|
| Single, head of household | $12,500 | $150,000 |
| Married filing jointly | $25,000 | $300,000 |
| Married filing separately | Not allowed | Not allowed |
What does the overtime deduction look like with real numbers?
Example 1: Maria, a warehouse worker
Maria earns $24 an hour. Most weeks she works 50 hours, so she gets 10 hours of overtime at $36 an hour. Her employer pays her $360 for those 10 hours. Of that, $240 is her regular rate and $120 is the premium “half.” If she works like this for 50 weeks, her qualified overtime is 50 x $120 = $6,000. That is the amount in box 12, code TT. Her MAGI is $72,000, well under $150,000, so she deducts the full $6,000.
Example 2: double time
Jake earns $20 an hour and works 50 hours in one week. His employer pays double time, $40 an hour, for the 10 extra hours. That is $400. The FLSA only requires $30 an hour, so only $10 an hour is qualified overtime. His qualified overtime for that week is 10 x $10 = $100, not $200.
Example 3: a single filer over the income limit
Dana has $8,000 of qualified overtime and a MAGI of $160,500. She is $10,500 over the $150,000 limit. Schedule 1-A only counts full thousands, so that is 10. Ten x $100 = $1,000. Her deduction is $8,000 minus $1,000 = $7,000.
Example 4: a married couple
Luis and Ana file jointly. Luis has $16,000 of qualified overtime and Ana has $11,000, for $27,000 total. The joint cap is $25,000. Their MAGI is $210,000, under $300,000, so they deduct $25,000.
Every dollar you deduct lowers your taxable income by one dollar. How much tax you save depends on your tax bracket.
How do you claim no tax on overtime on your return?
- Get your 2026 W-2 from each job. Find box 12, code TT.
- Fill out Part I of Schedule 1-A to figure your MAGI.
- In Part III, list each employer’s name, EIN and the code TT amount. Add them up.
- Apply the cap ($12,500, or $25,000 joint) and the income phase-out.
- Carry the result to Part VI. The total goes on Form 1040, line 13a, on the 2026 draft forms.
For a full line-by-line tour, including tips, car loan interest and the senior deduction, read our guide to Schedule 1-A explained.
The deduction is taken after adjusted gross income is figured. It lowers your taxable income, not your AGI. Need the filing dates? See our 2027 tax deadlines.
Can you get the tax break in your paycheck now?
Your employer still withholds income tax from all of your overtime. It can only withhold less if you give it a new Form W-4. The 2026 W-4 lets you include your expected overtime deduction in Step 4(b). The IRS Tax Withholding Estimator can help you pick a number. If you don’t change your W-4, you get the benefit when you file, as a smaller balance due or a bigger refund.
What records should you keep?
- Every 2026 Form W-2, and any Form W-2c your employer sends.
- Pay stubs that show your overtime hours and rate. They help you check box 12, code TT.
- Any messages with your employer about a missing or wrong code TT amount.
- A copy of your return with Schedule 1-A.
No tax on overtime FAQ
No. Only the premium part above your regular rate, like the “half” in time-and-a-half, can be deducted. It is still subject to Social Security and Medicare tax, and the deduction is capped at $12,500, or $25,000 on a joint return.
Look in box 12 for code TT. Employers must report qualified overtime there starting with 2026. For 2026, you can only deduct what is reported in box 12, code TT.
Yes. You can claim it whether you itemize or take the standard deduction. You claim it on Schedule 1-A.
No. Only overtime required by the federal Fair Labor Standards Act counts. Overtime paid only because of a state law, a union contract or company policy does not qualify.
It applies to tax years 2025 through 2028. Unless Congress extends it, it ends after 2028.
About the author
Get help with your overtime deduction
Moon Valley Accounting & Tax Services helps Phoenix workers and families claim the new deductions they qualify for, in English and Spanish. Book a free consultation and bring your W-2s. We’ll check your overtime and the rest of your return. You can also see all of our tax, bookkeeping and payroll services.
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Sources
- 26 U.S.C. § 225 (qualified overtime compensation)
- IRS: Fact Sheet 2026-13, questions and answers on the overtime deduction
- IRS: What to know about the No Tax on Overtime deduction
- IRS: Tax deductions for working Americans and seniors
- IRS: 2026 Schedule 1-A (Form 1040), draft
- IRS: 2026 Instructions for Forms W-2 and W-3, draft (box 12, code TT)
- U.S. Department of Labor: Overtime pay
This article is general information, not tax advice for your situation. Tax rules can change, so talk with a tax professional before you file.