← Guides · November 9, 2026
How the New Overtime Deduction Works (With an Example)
Under the 2025-2028 rules, workers can deduct the premium part of qualifying overtime, up to $12,500 ($25,000 joint).
Example: hourly wage $26, 250 overtime hours a year at time-and-a-half.
- Overtime premium = 250 × $26 × 0.5 = $3,250
- Add $6,000 in qualified tips → total deduction $9,250
- At a 22% bracket: about $2,035 less federal tax.
Watch the phase-out
The deduction shrinks by $100 for every $1,000 of modified AGI above $150,000 ($300,000 joint). Plan ahead if you are near the line.
What it does not do
It does not reduce Social Security or Medicare tax, and it only covers overtime required by federal law.
Plug your numbers into the calculator.