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.
Updated 18 Sept 2026
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.
What does this mean for you? Work out your own number: 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 if you have both types of qualifying income.
Put your MAGI and qualifying overtime premium into the no-tax-on-overtime calculator to see your deduction after the phase-out, and the estimated tax saved at your bracket.