Overtime Kept

No tax on overtime › Who qualifies

Who qualifies for no tax on overtime?

You qualify if federal law requires your employer to pay you overtime: you are covered by the Fair Labor Standards Act and not exempt from its overtime rule. Most hourly workers paid time-and-a-half after 40 hours a week meet that test.

The four requirements

  1. You're overtime-eligible under the federal law. The Fair Labor Standards Act covers you and you are not exempt from its overtime requirement. The IRS calls this a fact-specific test that depends on your job duties, how you're paid and how much.
  2. The overtime is the federal premium. Only the part of overtime pay the FLSA requires counts: half your regular rate for each hour over 40 in a workweek.
  3. You have a Social Security number valid for work, and it's on your return. If both spouses had overtime, both need one.
  4. If you're married, you file jointly. Married filing separately gets no deduction.

Workers who usually qualify

  • Hourly employees in warehouses, factories, retail, restaurants, construction, call centers and logistics.
  • Nurses, aides and other hospital staff, including those paid overtime under the 8 and 80 system.
  • Police officers and firefighters, for the overtime the FLSA requires under their work-period rules.
  • Salaried employees who are not exempt, such as many lower-paid office staff, when the FLSA entitles them to overtime.

Whose overtime doesn't count

  • Exempt employees. Salaried executives, administrators and professionals who meet the federal exemption tests don't get FLSA overtime, so any overtime their employer pays voluntarily doesn't qualify.
  • Workers outside the FLSA overtime rule, such as many interstate truck drivers under the Motor Carrier Act exemption and some airline and railroad employees.
  • Independent contractors and the self-employed. Only employees receive FLSA overtime. The rare exception is a worker who is an employee under labor law but paid on a 1099; that overtime is reported on the 1099 and goes on Schedule 1-A, line 14b.
  • Overtime required only by state law or a union contract. California's daily overtime after 8 hours, or a contract that pays double time, goes beyond the federal rule. Only the federal half counts.

Not sure if you're exempt?

Look at your pay stub. If it shows an overtime rate of 1.5 times your hourly rate for hours over 40, you're very likely non-exempt. If you're salaried and never see overtime on your stub, you're probably exempt. Your HR or payroll department can confirm how you're classified, and starting with 2026 pay, your W-2 shows qualified overtime in box 12 with code TT.

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.