Step 1: find your qualified overtime
Use whichever your paperwork shows.
- W-2 box 12, code TT (2026 and later): that's the number. Use it as is.
- Overtime hours and your rate: hours over 40 in each week × your regular rate × 0.5.
- Total overtime pay at time-and-a-half: divide by 3.
- Total pay at double time: divide by 4. Only the federal half-time premium counts.
$30 an hour, 8 overtime hours a week, 48 weeks: 384 overtime hours.
Overtime pay: 384 × $45 = $17,280.
Qualified premium: 384 × $15 = $5,760, the same as $17,280 ÷ 3.
Step 2: apply the limits
The deduction can't exceed $12,500, or $25,000 on a joint return. It then shrinks by $100 for each $1,000 of modified adjusted gross income over $150,000 ($300,000 joint). Married filing separately gets nothing.
Step 3: work out what it saves
The deduction lowers your taxable income, so it saves your federal income tax rate on that amount. In the 12% bracket a $5,760 deduction saves about $691; in the 22% bracket, about $1,267. If the deduction pushes you across a bracket line, part of it is saved at each rate, which is how the calculator on this site does it.
Single, $72,000 total income in 2026. Taxable income before: $72,000 − $16,100 standard deduction = $55,900, in the 22% bracket.
After the $5,760 deduction: $50,140. That crosses the 22% line at $50,400.
Tax saved: $5,500 × 22% + $260 × 12% = $1,241.
Step 4: claim it
Fill in Schedule 1-A and attach it to Form 1040. You can take it with the standard deduction; no itemizing needed. Tax software asks for it once you enter your W-2.
What it doesn't change
Social Security and Medicare tax still apply to all overtime. Your employer keeps withholding income tax as before, so the saving arrives as a bigger refund or a smaller bill. Most states, including California, still tax overtime.
Updated November 3, 2026. Sources: Internal Revenue Code §225, IRS Notice 2025-69, IRS questions and answers on the qualified overtime deduction (FS-2026-13), IRS Fact Sheet 2025-03.