# No Tax on Overtime: Income Limits and Phase-Out, Explained

The $12,500 cap ($25,000 married) shrinks $100 for every $1,000 of income over the threshold — a staircase, not a smooth taper.

The no-tax-on-overtime deduction caps at $12,500 ($25,000 if married filing jointly), and shrinks by $100 for every $1,000 your MAGI exceeds $150,000 ($300,000 joint), reaching $0 at $275,000 ($550,000 joint). It's a step function, not a smooth reduction, and married filing separately can't claim it at any income.

Work out your own number with the free [No tax on overtime calculator](https://rulecost.com/paycheck/no-tax-on-overtime-calculator/).

The 2025 tax law's overtime deduction (26 U.S.C. §225) has a cap and a separate, income-based
phase-out — two different limits that both apply at once.

## The cap

The deduction covers only the "premium" portion of time-and-a-half overtime pay — the extra half, not
the whole overtime wage — up to:

- **$12,500 a year**, for single, head of household, or qualifying surviving spouse filers.
- **$25,000 a year**, for married couples filing jointly.

## The phase-out

Above a MAGI threshold, the cap itself shrinks. §225(b)(2)(A) sets the threshold at $150,000
($300,000 for joint filers), and reduces the available deduction by $100 for every $1,000 of MAGI
above that threshold — a step, not a smooth curve. Being $999 over the threshold costs nothing;
crossing to $1,000 over costs exactly $100 of deduction.

Run the numbers forward and the deduction reaches exactly $0 at:

- **$275,000 MAGI**, single filers ($150,000 threshold + $125,000 needed to erase a $12,500 cap at
  $100 per $1,000).
- **$550,000 MAGI**, joint filers ($300,000 threshold + $250,000 needed to erase a $25,000 cap).

## Married filing separately gets nothing, at any income

This isn't a smaller cap — §225(e) bars the deduction entirely for anyone filing as married filing
separately, regardless of how low their income is. A separate filer earning $40,000 with $3,000 of
qualifying overtime premium gets a $0 deduction, the same as a separate filer earning $1 million.

## Why this differs from no tax on tips

The tips deduction (§224) uses the identical threshold and $100-per-$1,000 phase-out mechanic, but a
flat $25,000 cap regardless of filing status — overtime is the one where marital status changes the
cap amount itself, not just the threshold. See
[whether you can claim both deductions](/guides/can-you-claim-no-tax-on-overtime-and-tips-together/) if you have
both types of qualifying income.

Put your MAGI and qualifying overtime premium into the
[no-tax-on-overtime calculator](/paycheck/no-tax-on-overtime-calculator/) to see your deduction after
the phase-out, and the estimated tax saved at your bracket.