A pay stub from a 58-hour week carries two overtime numbers. Only one matters on your tax return. The lunch trailer version of no tax on overtime says the whole overtime check is untaxed. It does not. What qualifies is the premium the Fair Labor Standards Act requires, the half in time-and-a-half, on hours past 40 in a workweek. At straight time-and-a-half that is one third of the overtime dollars on the stub, and the other two thirds is taxed like any hour you work. Social Security and Medicare come out of every overtime dollar either way.
How the no tax on overtime deduction actually works
The 2025 tax law (Public Law 119-21, section 70202) added section 225 to the Internal Revenue Code. 26 U.S.C. 225(b)(1) caps the deduction at "$12,500 ($25,000 in the case of a joint return)." Section 225(b)(2)(A) cuts that cap by "$100 for each $1,000" of modified adjusted gross income above $150,000, or $300,000 joint, so a filer holding the full cap loses it at $275,000† of modified AGI and $550,000† joint. Section 225(g) ends the deduction after December 31, 2028. You claim it on Schedule 1-A (Form 1040), Part III, and married workers must file jointly.
A smaller qualified amount runs out sooner.
Brendan McDermott, an analyst at the Congressional Research Service, says in report IF13263: "The overtime deduction does not impact a taxpayer's federal adjusted gross income or earned income." What your state does follows from that sentence.
What counts and what does not, from daily overtime to double time
The FLSA measures overtime one workweek at a time, 168 fixed hours, no averaging across weeks. DOL Wage and Hour Division Fact Sheet #23 says the Act "does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, as such." IRS Fact Sheet FS-2026-13, issued August 6, 2026, names those cases in question 16.
Run that against a four-ten schedule. Hours 9 and 10 Monday through Thursday pay at time-and-a-half under plenty of agreements, but the week still totals 40, so none of it is qualified overtime compensation.
Double time surprises people.
The fact sheet works an example at a $20 regular rate, 50 hours, with the 10 overtime hours at double time. The employer pays $400 for those hours. Only $100 of it qualifies, "the 'half' amount in the required one and one-half times." The other $300 is ordinary taxable wages.
Ronald J. Eagar, chief operating officer and partner at Grassi, says in SMACNews: "Overtime paid in excess of FLSA requirements does not currently qualify for the deduction. This includes overtime triggered by union contracts, company policy, or state or local law." Read that narrowly. Working under a contract does not cost you the deduction. You keep the qualified half on the hours past 40, and only what the contract pays above the federal premium sits outside.
Exempt workers get no deduction. FS-2026-13 question 4 says an FLSA overtime-ineligible employee "does not receive qualified overtime compensation regardless of other laws or circumstances (such as a collective bargaining agreement) providing for overtime pay." Salary is not the same thing as exempt. DOL Fact Sheet #17A says the white-collar exemptions "do not apply to manual laborers or other 'blue-collar' workers," and a working foreman still laying out and bending pipe is doing manual labor whatever the stub calls him.
Your qualified half is only as big as the regular rate behind it. The regular rate under 29 U.S.C. 207(e) takes in "all remuneration for employment," so a shift differential or a nondiscretionary bonus lifts the rate the half is figured on. Under 29 CFR 778.217(c)(1) a per diem that approximates the actual expense stays out of the regular rate, but "if the amount paid as 'reimbursement' is disproportionately large, the excess amount will be included in the regular rate." How travel pay and per diem is structured can move that rate, and per diem itself is never qualified overtime.
On Davis-Bacon and state prevailing-wage work, ask about the fringe. Fringe paid into a bona fide plan and fringe handed to you in cash do not sit the same way in the regular rate. 29 CFR 5.32 is the rule to put in front of your CPA.
A 58-hour week, run all the way out
Here is the method. Qualified overtime for a workweek is hours over 40, times one-half, times the FLSA regular rate, the formula in FS-2026-13 question 12. Annual is weekly times weeks worked, capped. Its value is your tax without the deduction minus your tax with it, not always the deduction times your top rate. Daggered figures are computed, not quoted.
Say $38.00 an hour, and swap in your own rate. A 58-hour week, five tens and a Saturday eight, is 18 overtime hours†. The overtime rate is $57.00† and the qualified half is $19.00† an hour, or $342.00† for the week.
Run 48 weeks like that.
Overtime pay for the year is $49,248†, of which $32,832† is straight time and only $16,416† is qualified overtime compensation. Gross wages come to $122,208†, under the threshold, so nothing phases out.
A single filer hits the $12,500 cap during the 37th such week†. Run it through the 2026 brackets in Rev. Proc. 2025-32. After the $16,100 standard deduction, taxable income falls from $106,108† to $93,608† and federal tax from $18,063.92† to $15,305.76†, a saving of $2,758.16†. It comes out short of a flat 24 percent because the deduction crosses the 24-to-22 line at $105,700. Married filing jointly, the full $16,416† fits under the $25,000 cap, and after the $32,200 standard deduction that income sits in the 12 percent joint bracket, saving $1,969.92†.
Box 12 code TT, your W-4, and what your state does
For tax year 2026 your employer must report qualified overtime in box 12 of the W-2 under code TT. FS-2026-13 question 20 says "for tax years after 2025, employees may not consider any amount of qualified overtime compensation in excess of what is reported on Form(s) W-2, box 12, code TT in determining their deduction." Missing or low, you need a Form W-2c.
Your 2026 paycheck does not grow by itself.
FS-2026-13 question 8 says an employer "may not reduce withholding on wages to account for the qualified overtime deduction unless the employee furnishes the employer an updated and valid Form W-4." The 2026 W-4 added a line for it in the step 4(b) worksheet. File one, or take it as a refund.
States split on McDermott's AGI point. North Dakota's Form ND-1 starts from "Federal taxable income from Form 1040 or 1040-SR, line 15," so the deduction is already inside the state starting number. Minnesota starts from federal AGI, and the Minnesota Department of Revenue's Tax Research Division says the federal deduction "does not affect adjusted gross income, the starting point for calculating Minnesota taxable income, and will not have an impact on Minnesota tax liability." Work in more than one state and ask that about each. Texas, Florida and South Dakota, among others, do not tax wages at all.
What to check on your stub this month
If you punch a clock and get time-and-a-half past 40 you are non-exempt, and hours have to total by workweek, not by pay period. In January, find box 12 code TT on the 2026 W-2 and ask for a W-2c that week if it is wrong.
Keep your own time until then, because a notebook with the daily in and out is what you hold up against box 12.
FS-2026-13 says its own answers "will not be relied on or used by the IRS to resolve a case," so have a CPA or an enrolled agent check your return.
Rinvio, which runs this blog, staffs electricians and other industrial trades on W-2.
Sources: 26 U.S.C. 225, subsections (b)(1), (b)(2)(A) and (g), at https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section225&num=0&edition=prelim; Public Law 119-21, section 70202; IRS Fact Sheet FS-2026-13, issued August 6, 2026, questions 4, 8, 12, 15, 16 and 20 and its reliance statement, at https://www.irs.gov/pub/taxpros/fs-2026-13.pdf; IRS Revenue Procedure 2025-32, 2026 tax rate tables and standard deduction, at https://www.irs.gov/pub/irs-drop/rp-25-32.pdf; IRS, "Schedule 1-A, Additional Deductions: What to know about the new form," on Part III of Schedule 1-A (Form 1040), at https://www.irs.gov/newsroom/schedule-1-a-additional-deductions-what-to-know-about-the-new-form; IRS Form W-4 (2026), step 4(b) deductions worksheet, at https://www.irs.gov/pub/irs-pdf/fw4.pdf; IRS General Instructions for Forms W-2 and W-3 (2026), box 12 code TT, at https://www.irs.gov/pub/irs-pdf/iw2w3.pdf; U.S. Department of Labor, Wage and Hour Division, Fact Sheet #23 on FLSA overtime pay, at https://www.dol.gov/agencies/whd/fact-sheets/23-flsa-overtime-pay, and Fact Sheet #17A on the executive, administrative and professional exemptions, at https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime; 29 U.S.C. 207(e) as quoted in FS-2026-13 question 15; 29 CFR 778.217(c)(1) at https://www.govinfo.gov/content/pkg/CFR-2024-title29-vol3/xml/CFR-2024-title29-vol3-sec778-217.xml; 29 CFR 5.32, overtime payments under the Davis-Bacon and related Acts, at https://www.ecfr.gov/current/title-29/part-5/section-5.32; Congressional Research Service, "The Deduction for Overtime Compensation," IF13263, by Brendan McDermott, July 1, 2026, at https://www.congress.gov/crs-product/IF13263; Ronald J. Eagar, chief operating officer and partner, Grassi, quoted in SMACNews, "What Contractors Should Know About 'No Tax on Overtime,'" March/April 2026, at https://www.smacna.org/news/smacnews/issue-archive/issue/articles/smacnews-march-april-2026/what-contractors-should-knowabout--no-tax-on-overtime; North Dakota Office of State Tax Commissioner, Form ND-1 (2025), line 1b, at https://www.tax.nd.gov/sites/www/files/documents/forms/individual/2025-iit/28702-form-nd-1-2025.pdf; Minnesota Department of Revenue, Tax Research Division, "Federal Update: P.L. 119-21 Subtraction for Overtime Pay," August 19, 2025, at https://www.revenue.state.mn.us/sites/default/files/2025-10/federal-update-overtime-subtraction.pdf. Figures marked with a dagger are computed by the author from the formula in FS-2026-13 question 12, the caps in 26 U.S.C. 225(b) and the 2026 tables in Rev. Proc. 2025-32. Featured photo: Oregon Department of Transportation / Flickr, CC BY 2.0