The One Big Beautiful Bill Act’s "no tax on overtime" break is real, but the name oversells it badly. It’s an income-tax deduction of only the time-and-a-half premium — not your whole overtime paycheck — capped at $12,500 or $25,000, and it leaves Social Security and Medicare tax on your overtime exactly where it was. This guide explains what’s actually deductible, how the income phase-out works, and how much the deduction is really worth.

Only the premium half is deductible

Despite the headline, you cannot deduct all of your overtime pay. The deduction covers only the premium — the extra pay above your regular rate, the "half" of time-and-a-half. For standard FLSA overtime paid at 1.5×, that premium is one-third of your overtime pay: on $8,000 of overtime, about $2,667 is deductible, not $8,000. And because it’s a deduction, it saves tax at your marginal rate — a worker in the 12% bracket saves roughly $320, not $2,667. Crucially it cuts income tax only: the 7.65% Social Security and Medicare (FICA) tax applies to your entire overtime paycheck and is untouched. This calculator always shows that FICA figure separately so you don’t overestimate the benefit.

The cap, the income phase-out, and who qualifies

The deductible premium is capped at $12,500 for single and head-of-household filers, or $25,000 for married filing jointly. You must have a valid Social Security number, the overtime must be required under the FLSA (contractual or exempt-employee premium pay may not qualify), and married taxpayers must file jointly — married filing separately can’t claim it at all. Income matters too: the deduction phases out by $100 for every full $1,000 of modified AGI above $150,000 (single/HoH) or $300,000 (joint), reaching $0 at $275,000 and $550,000.

Limits and what it doesn’t do

You still report all your wages — the deduction is claimed on your return (Schedule 1-A), and beginning in 2026 employers separately report qualified overtime on your W-2. It sunsets after 2028, so overtime earned in 2029 and later gets no deduction. This tool uses a simplified model: modified AGI is estimated from your wages, overtime, and other income; the marginal rate comes from 2026 brackets minus the standard deduction; and the phase-out uses complete $1,000 increments. Your actual return can differ, and eligibility depends on your specific facts. Check your numbers with a tax professional or the IRS before filing.