Overtime Tax Calculator
Calculate your overtime take-home pay with the OBBBA tax-free overtime deduction. See your true after-tax hourly rate and how much the One Big Beautiful Bill Act saves you.
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One of the most persistent myths in personal finance is that "overtime is taxed more." In reality, all earned income is taxed at the same marginal rates. Overtime pay may push some of your income into a higher bracket, but only the dollars in that bracket are taxed at the higher rate — your base pay is never retroactively taxed more. Your paycheck may look smaller per-hour because of withholding adjustments, but your annual tax return reconciles everything.
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, introduced a new above-the-line deduction for qualified overtime premium pay. For tax years 2025 through 2028, W-2 employees covered under the Fair Labor Standards Act (FLSA) can deduct up to $12,500 of overtime premium pay from their federal taxable income ($25,000 for married filing jointly). The "premium" is only the extra portion above straight time — for time-and-a-half, that means the 0.5x portion, not the full 1.5x hourly rate.
The OBBBA deduction phases out for higher earners: it is reduced by 10% of the amount by which your modified adjusted gross income (MAGI) exceeds $150,000 for single filers or $300,000 for married filing jointly. This means the deduction is fully phased out at $275,000 single / $550,000 married.
Importantly, the OBBBA deduction only reduces federal income tax. It does not reduce FICA taxes (Social Security at 6.2% and Medicare at 1.45%), and most states do not conform to this deduction for state income tax purposes. The deduction also does not apply to independent contractors, salaried-exempt employees, or any non-FLSA-covered overtime arrangements. It is set to expire after the 2028 tax year unless Congress extends it.