TakeHomeGuideTax year 2026

No Tax on Overtime and Tips Calculator

See how much federal income tax the new overtime and tips deductions save you for 2025 to 2028.

The rules at a glance

Years2025 through 2028
Overtime deduction limit$12,500 ($25,000 married filing jointly)
Tips deduction limit$25,000
Phase-out starts at modified AGI of$150,000 ($300,000 married filing jointly)
What counts as overtimeOnly the premium half of FLSA-required time-and-a-half
Social Security numberRequired on the return; married couples must file jointly

Source: IRS, "One Big Beautiful Bill Act: Tax deductions for working Americans and seniors" (Public Law 119-21). The $100 per $1,000 phase-out rate is from the law text as summarized by tax publishers.

Frequently asked questions

What is the no tax on overtime deduction?

A new federal deduction for tax years 2025 through 2028. You can deduct the premium part of overtime pay that the Fair Labor Standards Act requires, such as the "half" in time-and-a-half. The maximum is $12,500 per year, or $25,000 for married couples filing jointly (IRS).

Do I stop paying tax on overtime completely?

No. The deduction lowers your federal income tax only, and only on the premium portion. You still pay Social Security and Medicare tax on all of your pay, and the regular-rate part of your overtime is still taxed.

Who qualifies for the tips deduction?

Employees and self-employed people who receive tips in occupations the IRS lists as customarily and regularly receiving tips. The maximum is $25,000 per year. Some service businesses are excluded.

Does it phase out at higher incomes?

Yes. Both deductions phase out when modified adjusted gross income is over $150,000 ($300,000 for joint filers). The statute reduces the deduction by $100 for each $1,000 (or part of $1,000) over the threshold, which the calculator applies.

Will my paycheck go up?

Probably not during the year. Employers do not have to change withholding, so the saving usually shows up as a larger refund (or smaller bill) when you file. You can adjust your W-4 with the IRS withholding estimator if you want it sooner.

Do states follow these deductions?

Many do not. This calculator covers federal income tax only. Check your state tax agency for its rules.

Estimate only, for federal income tax. It uses the standard deduction and 2026 brackets and assumes your income is all wages. Talk to a tax professional about your situation.

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