No Tax on Overtime Calculator
Calculate exactly how much you'll save now that overtime pay is exempt from federal income tax under the OBBBA (2025–2028). Enter your hourly wage and overtime hours below for an instant estimate.
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How Does the No Tax on Overtime Law Work?
The OBBBA overtime tax exemption removes federal income tax from overtime pay — hours worked beyond 40 per week — for hourly employees covered by the Fair Labor Standards Act (FLSA). This is one of the most significant paycheck changes for America's 18 million overtime-eligible workers in decades.
The Overtime Tax Savings Formula
The calculation works as follows:
For example, a nurse earning $35/hour working 10 overtime hours/week at 1.5x rate generates $52,500/year in OT pay. At a 22% marginal rate, that's $11,550/year in federal tax savings.
Key Details of the OBBBA Overtime Provision
- Applies to hours worked beyond 40 per week
- Covers time-and-a-half (1.5x) and double-time (2x) pay
- Only the overtime portion of pay is exempt — not your regular wages
- FICA taxes (6.2% Social Security + 1.45% Medicare) still apply to overtime pay
- Effective for tax years 2025 through 2028
- Income limit: workers earning under $160,000/year total
Who Qualifies for the Overtime Exemption?
- Hourly (non-exempt) workers under the FLSA
- Must be paid overtime at 1.5x or higher for hours over 40/week
- Salaried workers who are FLSA-exempt typically do not qualify
- Most production, healthcare, construction, and retail hourly workers are covered
Not sure if you qualify? Visit our OBBBA FAQ for eligibility details by profession, or check our tips calculator if you also earn tip income.
Industries That Benefit Most from No Tax on Overtime
The no tax on overtime exemption is most valuable in industries where overtime is routine. Here's a breakdown of which sectors see the biggest impact:
- Healthcare (Nurses, EMTs, Aides) — 12-hour shifts and mandatory overtime are standard in hospitals. A registered nurse earning $38/hour working 12 OT hours/week saves $11,000–$14,000/year in federal taxes.
- Manufacturing — Factory and plant workers often work 50–60 hour weeks during peak production. Regular overtime at $22–$28/hour means $3,000–$7,000 in annual federal tax savings.
- Construction — Seasonal overtime during busy periods is common. Skilled tradespeople earning $30–$50/hour with 8 OT hours/week save $5,000–$10,000+/year.
- Retail and Warehouse — Holiday season overtime at Amazon, Walmart, UPS, and FedEx. Warehouse workers averaging $20/hour with 8 OT hours/week can save $2,800–$4,500/year.
- Transportation — Truck drivers and delivery workers with overtime qualify. Local delivery drivers averaging 10 OT hours/week at $22/hour save approximately $3,600/year in federal taxes.
- Oil and Gas — Field workers and rig workers often work intense schedules with heavy overtime. At $35–$50/hour with significant OT, savings can reach $15,000+/year.
- Law Enforcement — Officers working extra shifts, court overtime, and special events qualify. A police officer at $32/hour with 8 OT hours/week saves roughly $5,600/year federally.
Three Overtime Tax Savings Examples
Example 1: Warehouse Worker (Low-Mid Income)
Profile: Fulfillment center worker, Ohio
- Hourly wage: $19.50
- Regular hours: 40/week | Overtime hours: 8/week at 1.5x
- Weeks per year: 48
- Annual regular pay: $37,440 | Annual OT pay: $11,232
- Total income: $48,672 | Marginal federal rate: 12%
Federal tax saved: ~$1,348/year — That's about $112/month extra.
Ohio state income tax (3.5%) still applies to OT, but the federal savings alone are meaningful for a household budget.
Example 2: Registered Nurse (Mid-High Income)
Profile: Hospital RN, Texas (no state income tax)
- Hourly wage: $38
- Regular hours: 36/week | Overtime hours: 12/week at 1.5x
- Weeks per year: 50
- Annual regular pay: $68,400 | Annual OT pay: $34,200
- Total income: $102,600 | Marginal federal rate: 22%
Federal tax saved: ~$7,524/year — More than $626/month back in your paycheck.
Texas has no state income tax, so this nurse receives the full benefit. FICA still applies (~$2,616 on OT), but total take-home improvement is substantial.
Example 3: Construction Electrician (High Income)
Profile: Licensed electrician, California
- Hourly wage: $48
- Regular hours: 40/week | Overtime hours: 10/week at 1.5x
- Weeks per year: 46
- Annual regular pay: $88,320 | Annual OT pay: $33,120
- Total income: $121,440 | Marginal federal rate: 24%
Federal tax saved: ~$7,949/year. California still taxes OT at 9.3%, reducing net take-home gain to ~$4,867/year.
For workers in high-tax states, the federal savings are still real — just partially offset by state tax. The bigger the OT income, the more valuable the federal exemption becomes.
Frequently Asked Questions About the Overtime Tax Exemption
What's the difference between the overtime exemption and regular pay?
Only the overtime portion of your earnings — pay for hours worked beyond 40 per week — is exempt from federal income tax. Your regular 40-hour wages are still fully taxable as always. The exemption doesn't change how your regular pay is taxed.
Do I qualify if I'm paid salary but work overtime?
Generally, no. The OBBBA overtime exemption applies to FLSA non-exempt employees — primarily hourly workers. If you're classified as a salaried exempt employee, you typically don't receive overtime pay under FLSA and therefore don't qualify. Consult our FAQ for details on specific situations.
Can I benefit from both the tips and overtime exemptions?
Yes. If you earn both tips and overtime pay — for example, a restaurant worker who works overtime hours and receives tips — you can claim both exemptions on your tax return. The combined savings can be significant. Use our tip tax calculator alongside this tool to estimate your total benefit.
Does the overtime exemption cover double-time pay?
Yes. Whether your overtime is paid at time-and-a-half (1.5x) or double-time (2x), the overtime pay is exempt from federal income tax. The key requirement is that the hours exceed 40 per workweek and are compensated as overtime under FLSA or applicable state labor law.
Will my employer automatically adjust my paycheck withholding?
Many employers are updating their payroll systems to reflect reduced federal withholding on overtime pay. If yours hasn't yet, you can submit an updated W-4 to adjust your withholding — or wait for a refund when you file. Either way, the money is yours to keep; it's just a question of timing.
Does this apply to comp time instead of overtime pay?
The exemption applies specifically to monetary overtime pay. If your employer offers compensatory time off (comp time) instead of overtime pay — which is permitted for some government employees — there is no cash overtime income to exempt. The benefit only applies when you receive actual overtime pay.
Related Tools
Also earn tip income? Use our No Tax on Tips Calculator — see how much you keep on both tip and overtime income combined.
Have more questions? Visit the OBBBA FAQ page for answers on FLSA eligibility, FICA, state taxes, filing, and more.
Want state-specific results? Browse our state overtime guides for Texas, Florida, California, New York, and Ohio.