I Worked Overtime Every Week. Here’s What It Did to My Tax Bill

Tax on overtime pay looks different this year. 

Key takeaways

• New rules may let you deduct part of your overtime, so you don’t have to pay federal income tax on all of it.
• Working extra hours doesn’t automatically mean higher taxes anymore.
• Limits and eligibility rules apply, but understanding them can help you keep more of your overtime pay.

Overtime pay feels great when it hits your bank account come payday. It can feel less great when tax season rolls around.

In the past, overtime was a double-edged sword. You earned more money, but 100% of your overtime pay was taxable and a potentially bigger tax bill later.

That’s changed.

Myth: Overtime bumps me into a new tax bracket

Before the 2025 tax season, all overtime pay was taxable, just like your regular wages.

If you worked enough overtime, your total income could push you into a higher tax bracket — meaning some of that extra pay was taxed at a higher rate, reducing how much you actually kept.

Reality: How No Tax on Overtime works

Overtime pay may be treated differently on your tax return this year due to changes under the One Big Beautiful Bill. 

If you work more than 40 hours a week and receive overtime from the Fair Labor Standards Act (FLSA), you can deduct up to $12,500 of that overtime pay if you’re single, or $25,000 if you’re married jointly.  

Overtime doesn’t push you into a higher tax bracket. Instead, the eligible portion counts as a deduction that reduces your taxable income. 

That said, not all overtime pay qualifies. Only the “premium” portion — the amount you earn above your regular hourly rate — can be deducted. Your base pay does not qualify.

The fine print: Tax on Overtime rules

The new No Tax on Overtime deduction comes with a few important limits:

• The deduction applies only to federal income tax. Social Security, Medicare, and state or local taxes still apply.
• If your modified adjusted gross income (MAGI) is above $150,000 ($300,000 if married filing jointly), you’re not eligible for the deduction.
• If you’re married, you must file jointly to qualify.
• Your overtime pay must be reported on a W-2, 1099, or another employer-provided statement.

Want to see how overtime affects your tax situation?

Overtime deductions depend on your income, filing status, and how your pay is reported. For all the nuances and unanswered questions about how the rules apply to you — and whether overtime could lower your tax bill — TurboTax Expert Full Service specialists are here to help. 

TurboTax makes it easy to get answers and file with confidence.