No Tax on Overtime in Tax Year 2026: What the Deduction Saves at Five Incomes

"No tax on overtime" is the shortest accurate way to describe a more interesting rule. Since the 2025 tax year, federal law lets eligible workers deduct qualified overtime pay — the FLSA-required premium portion, not every extra hour — up to $12,500 per year for single filers ($25,000 for married filing jointly), through the 2028 tax year. But a deduction is not a credit: it shrinks taxable income, and what it is worth to you depends entirely on which tax bracket those dollars would otherwise sit in.

This post runs one controlled experiment: hold the qualified overtime deduction at its $12,500 maximum, hold filing status, withholding, and everything else constant, and vary only wages. Every figure below is computed twice by the same engine that powers our tax refund calculator — once without the deduction, once with it — and the saving is the full difference between the two complete tax calculations, not a bracket-rate shortcut.

• Filing status: single, tax year 2026, basic standard deduction, no dependents, no other income or credits.
• Wages are W-2 Box 1 wages, and they already include the qualified overtime premium — the deduction does not remove the income, it removes up to $12,500 of it from the federal tax base.
• Federal withholding is held at 14% of wages in both runs, so any year-end movement comes from the deduction alone.
• The engine applies the deduction against the federal income tax only; FICA and state taxes are untouched by this provision.

Computed by the RefundPlot tax-refund engine at build time. Single filer, tax year 2026, basic standard deduction, no dependents or other credits, no state income tax; federal withholding held at 14% of wages in both runs. Saving = full difference between the two complete federal tax calculations.

The deduction is a fixed $12,500, but the dollars it removes are taxed at your marginal rate. At $35,000 of wages the deduction straddles the 10% and 12% brackets, so the federal tax falls by $1,380 — noticeably less than the $1,500 a "12% bracket" shorthand would promise. At $55,000 it sits entirely inside the 12% bracket and returns exactly $1,500; at $95,000 it sits entirely in the 22% bracket and returns $2,750. Same deduction, same form, close to double the value across that range — the spread between those rows is the entire point of the provision's design, and also the strongest argument for checking your own number instead of repeating an average.

The most useful row is the last one. Withholding at 14% of $125,000 nearly covers the tax bill — but not quite: without the deduction, this worker finishes the year owing the IRS. Claim the same $12,500 overtime deduction and the position flips to a refund. For households close to break-even, this deduction is less about the size of the saving than about which side of zero it lands on.

• The deduction phases out once modified AGI passes $150,000 ($300,000 MFJ). All five personas sit below that line; the engine does not model the phase-out yet, so do not extrapolate these rows to higher incomes.
• This table is single-filer math: MFJ returns have a different standard deduction, different brackets, and a $25,000 cap — do not apply these rows to a joint return. Run the calculator with your own filing status instead.
• Only the FLSA-required overtime premium qualifies — not total overtime pay, not comp time, and not state-law-only overtime.
• It is an above-the-line deduction against federal income tax. It does not reduce Social Security or Medicare tax, and it does not touch state income tax.
• The figures are engine estimates for a model taxpayer, not tax advice; your withholding, credits, and state all shift the outcome. The IRS overview of these deductions is on irs.gov.

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