Federal law under the Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees at least 1.5 times their regular rate for any hours worked beyond 40 in a workweek. For tax years 2025 through 2028, a new deduction under IRC §225 (the One Big Beautiful Bill Act, P.L. 119-21) allows workers to deduct the premium portion of qualifying FLSA overtime from federal income — up to $12,500 (single) or $25,000 (joint). FICA still applies to all overtime pay.
Use the overtime calculator to estimate your gross pay and tax on any combination of regular and overtime hours.
The FLSA Overtime Rule
The Department of Labor Wage and Hour Division sets and enforces the FLSA overtime requirement:
- Trigger: hours over 40 in a single workweek (not averaged over two weeks)
- Rate: at least 1.5× the regular rate of pay
- Applies to: non-exempt hourly and salaried employees
Regular rate for hourly workers: the hourly rate itself (plus any required add-ons like non-discretionary bonuses).
Regular rate for non-exempt salaried workers: weekly salary divided by the number of hours the salary is intended to cover — often 40, unless the employer and employee agree otherwise.
Worked Example: $20 Per Hour, 10 Overtime Hours Per Week
A non-exempt hourly employee earning $20 per hour works 50 hours every week for 52 weeks:
| Component | Calculation | Annual |
|---|---|---|
| Regular pay | $20 × 40 hrs × 52 wks | $41,600 |
| Overtime pay | $20 × 1.5 × 10 hrs × 52 wks | $15,600 |
| Total gross | — | $57,200 |
| Qualified OT premium | $20 × 0.5 × 10 × 52 (the half-time) | $5,200 |
The “premium” is only the extra half — the part of overtime pay that exceeds straight time. The regular-rate portion of overtime hours ($10,400 in this example — $20 × 10 × 52) is not deductible.
Taxes with the 2025–2028 overtime deduction (single filer):
| Item | Amount |
|---|---|
| Gross wages | $57,200 |
| Standard deduction | $16,100 |
| Overtime deduction (full premium) | $5,200 |
| Federal taxable income | $35,900 |
| Federal income tax | $4,060 |
| FICA (7.65% on $57,200) | $4,375 |
| Estimated annual take-home | $48,765 |
Without the overtime deduction:
| Federal taxable income | $41,100 |
|---|---|
| Federal income tax | $4,684 |
| Estimated annual take-home | $48,141 |
The deduction saves approximately $624 per year in federal income tax on a $57,200 gross — about $24 per biweekly paycheck. FICA ($4,375) is the same either way.
The 2025–2028 Overtime Deduction (IRC §225)
The One Big Beautiful Bill Act, P.L. 119-21 created a temporary federal income tax deduction for qualified overtime compensation. Key rules:
| Feature | Rule |
|---|---|
| What qualifies | The FLSA section 7 premium only (the “half” in time-and-a-half) |
| Maximum deduction | $12,500 (single / HOH / MFS); $25,000 (MFJ) |
| Phase-out starts | MAGI above $150,000 (single); $300,000 (MFJ) |
| Phase-out rate | $100 reduction per $1,000 of MAGI above the start |
| Applies to | Federal income tax only |
| Tax years | 2025–2028 |
| FICA | Still applies to all overtime |
If your MAGI is at or below $150,000 and your qualifying overtime premium is $12,500 or less, you get the full deduction. The deduction is claimed on Schedule 1-A (released by the IRS in IR-2026-28).
Overtime required only by state law or a union contract (not by federal FLSA §7) does not qualify for the deduction (26 U.S.C. §225).
Exempt vs. Non-Exempt Employees
The FLSA overtime requirement applies only to non-exempt employees. Exempt employees include:
- Executive exemption: manages two or more employees, has authority over hiring/firing, meets the salary level
- Administrative exemption: office or non-manual work related to management, exercises discretion and judgment
- Professional exemption: advanced knowledge in a field of science or learning, or creative and artistic work
- Outside sales exemption: primarily makes sales away from the employer’s premises
- Highly compensated: total annual compensation of at least $107,432 (verify current threshold at DOL.gov)
To qualify for most exemptions, the employee must also meet a salary basis test — they receive a predetermined salary not subject to reduction based on the quality or quantity of work, currently at least $684 per week under federal rules (state rules may be higher).
Overtime Rates at a Glance
| Regular Rate | OT Rate (1.5×) | Premium (extra 0.5×) |
|---|---|---|
| $15.00 | $22.50 | $7.50 |
| $20.00 | $30.00 | $10.00 |
| $25.00 | $37.50 | $12.50 |
| $30.00 | $45.00 | $15.00 |
| $35.00 | $52.50 | $17.50 |
The “premium” column is the portion eligible for the OT deduction. The deductible amount per overtime hour is 0.5× the regular rate.
For hourly-to-annual conversions without overtime, see hourly to salary conversion. For the detailed tax policy explanation, see no tax on overtime explained.