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Qualified Overtime Compensation (Tax Deduction)

Also called: no tax on overtime, overtime deduction

Definition: Qualified overtime compensation is the FLSA-required premium on overtime pay that U.S. taxpayers can deduct for tax years 2025 through 2028, up to $12,500 ($25,000 joint), subject to an income phase-out.

Updated November 6, 2026 · How we check facts

Qualified overtime compensation is overtime pay above the regular rate that the Fair Labor Standards Act requires, the extra half in time and a half. The IRS says only that premium counts, not the straight-time part of the pay. The deduction applies to tax years 2025 through 2028, can be claimed with or without itemizing, and must be reported on a Form W-2, Form 1099 or other statement.

Limits

  • Maximum deduction: $12,500 ($25,000 for joint filers).
  • Reduced by $100 for each $1,000 of modified adjusted gross income above $150,000 ($300,000 joint), and never below zero (26 U.S.C. § 225).
  • It lowers income tax, not Social Security or Medicare tax.

Example

A single filer has $20,000 of overtime premium and $200,000 of modified AGI. The cap is $12,500; the reduction is 50 × $100 = $5,000, so the deduction is $7,500. At $275,000 or more of modified AGI it falls to zero.

Details and a rate table are in how to calculate overtime pay. The overtime calculator shows the weekly premium. This is educational, not tax advice.

Calculate it

Free toolOvertime CalculatorYour pay with overtime, hour by hour.Free toolPaycheck CalculatorTake-home pay after federal and state taxes.

Guides that explain it

Related terms

Time and a HalfTime and a half is overtime pay at 1.5 times the regular hourly rate; under the U.S. FLSA it is the minimum rate for non-exempt employees' hours worked over 40 in a workweek.Regular Rate of PayThe regular rate is the hourly amount used to compute overtime under the FLSA: total weekly remuneration, with limited exclusions, divided by total hours worked, not simply the base wage.401(k)A 401(k) is an employer-sponsored retirement savings plan in which employees contribute part of their pay, often with employer matching, up to annual limits set by the IRS.Annual Percentage Rate (APR)Annual percentage rate (APR) is the cost of credit expressed as a yearly rate; for many loans it combines the interest rate with certain fees charged when the loan is made.Annual Percentage Yield (APY)Annual percentage yield (APY) is the total interest a deposit account pays over a 365-day period, expressed as a percentage that includes the effect of compounding.Catch-Up ContributionA catch-up contribution is an extra amount that people age 50 or older may add to a 401(k) or similar retirement plan above the normal annual limit, if the plan permits it.Compound InterestCompound interest is interest calculated on both the original principal and the interest already added to it, so the balance grows faster than it would with simple interest.Debt-to-Income Ratio (DTI)Debt-to-income ratio (DTI) is the share of gross monthly income that goes to monthly debt payments; lenders use it to judge whether a borrower can afford another loan.

Sources

  1. IRS — One Big Beautiful Bill Act: tax deductions for working Americans and seniors
  2. 26 U.S. Code § 225 — Qualified overtime compensation