Updated for tax year 2026

Methodology

Every number on MyOvertimeTax comes from the same open recipe below. No black box: the inputs, the formula, the limits, and the assumptions are all on this page, and every figure traces back to IRS guidance.

The formula, step by step

The calculators estimate the federal income tax deduction for qualified overtime compensation created by the One Big Beautiful Bill Act (OBBBA §70202, new IRC §225) for tax years 2025 through 2028.

1. Qualified overtime premium. In Estimate mode: overtime hours per week × weeks worked × (regular hourly rate × 0.5). Only the premium half of FLSA-required overtime counts — the extra 50% in time-and-a-half, not the base pay. In W-2 mode: the amount you enter from W-2 Box 12, Code TT, which is your employer's reported qualified premium.
2. Annual cap. The premium is capped at $12,500 per year for single and head-of-household filers, $25,000 for married couples filing jointly. Married filing separately does not qualify.
3. MAGI phaseout. Above $150,000 of modified adjusted gross income ($300,000 joint), the deduction shrinks by $100 for every full $1,000 of MAGI over the threshold. Only complete $1,000 chunks count — $15,900 over the threshold reduces the deduction by $1,500, not $1,590. The deduction reaches zero at $275,000 MAGI single ($550,000 joint).
4. Estimated tax savings. The final deduction is multiplied by the federal marginal tax rate you select. This is an estimate of federal income tax saved, not a full tax computation.

Worked example

A single filer earning $25/hour, working 10 overtime hours a week for 52 weeks, with $60,000 MAGI and a 22% marginal rate:

• Qualified premium: 10 × 52 × ($25 × 0.5) = $6,500
• Cap check: $6,500 is under the $12,500 single cap, so the full amount is kept
• Phaseout check: $60,000 MAGI is under the $150,000 threshold, so no reduction
• Estimated federal tax savings: $6,500 × 0.22 = $1,430

Our assumptions

• The hourly rate you enter is your FLSA regular rate, and the overtime hours you enter are FLSA-required overtime (hours over 40 per week for nonexempt employees).
• Weeks worked per year cannot exceed 52.
• The MAGI and marginal tax rate you enter are correct for your situation. We do not compute your MAGI or your tax bracket for you.
• For 2025, the IRS allowed transition relief with reasonable reporting methods; from the 2026 tax year, qualified premium is reported in W-2 Box 12 under Code TT, and that reported figure controls the deduction.

What the calculators do not do

• They do not calculate state or local taxes, Social Security, or Medicare — FICA and most state taxes still apply to all of your overtime.
• They do not compute your complete federal tax liability, only the estimated savings from this one deduction.
• They are estimates, not tax advice. Confirm your situation with a tax professional or current IRS guidance.

Sources

• IRS Fact Sheet FS-2026-13 (including the August 2026 update) — reporting and withholding guidance
• IRS Notice 2025-69 — transition relief for 2025
• OBBBA §70202 / new IRC §225 — the statute creating the deduction
• U.S. Department of Labor — FLSA overtime rules (29 U.S.C. §207)

Last updated: October 2026 · Overtime tax calculator · Overtime pay tax calculator