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There’s a new tax break for hourly workers, and it’s a good one. Thanks to the No Tax on Overtime deduction — part of the One Big Beautiful Bill Act (OBBBA) — the premium portion of your overtime pay is now deductible from your taxable income. That means less taxes owed, more money in your pocket.
The law covers tax years 2025 through 2028. It’s not permanent, so this is the window to take advantage of it.
But here’s the thing: most people have no idea how much they’re actually saving. The math isn’t complicated, but it’s easy to underestimate just how significant this break can be over a full year. Let’s fix that.
See Your Savings Right Now
We built a free calculator specifically for hourly workers like you. No email required. No sign-up. Just plug in your numbers and see exactly what you’re working with.
👉 Use the Free Overtime Tax Savings Calculator at HourlyInvestor.com
Enter your hourly rate, your average overtime hours per week, and your filing status. The calculator handles the rest — showing you your estimated annual deduction and approximate tax savings based on your situation.
It takes less than a minute. Try it now, then come back and we’ll walk through exactly how the math works.
How the Calculation Works: A Real Example
Let’s use a concrete example so you can see exactly what’s happening under the hood.
Worker profile:
- Hourly rate: $20/hour
- Overtime hours: 10 hours/week
- Filing status: Single
- Federal marginal tax rate: 22% (common for many full-time hourly workers)
Step 1: Figure Out the Premium Amount Per Hour
When you work overtime, you earn time-and-a-half. So:
- Regular rate: $20/hr
- OT rate: $30/hr (1.5x)
- Premium portion: $10/hr (that’s the extra 0.5x — the only part that’s deductible)
Important: the deduction is only on the premium — not the full $30 overtime rate. The regular $20/hr portion is still fully taxable income.
Step 2: Calculate the Weekly Deductible Amount
$10 premium × 10 OT hours = $100 per week in deductible overtime premium
Step 3: Annualize It
$100/week × 52 weeks = $5,200 per year in total deductible OT premium
That’s $5,200 that gets subtracted from your taxable income. You don’t pay federal income tax on that $5,200.
Step 4: Calculate the Tax Savings
$5,200 × 22% marginal rate = ~$1,144 saved in federal taxes
That’s over a thousand dollars back. For working the same hours you were already working.
What About the Deduction Cap?
The deduction is capped at $12,500/year for single filers and $25,000/year for married filing jointly. In our example, the $5,200 deduction is well under the cap, so the full amount applies.
You’d need to earn more than $12,500 in overtime premiums (roughly 1,250+ overtime hours in a year at $10/hr premium) before hitting the single-filer cap. Most workers won’t hit that limit — but if you work a ton of OT, it’s worth knowing where the ceiling is.
What If I Work Different Hours Week to Week?
Most hourly workers don’t put in exactly 10 hours of OT every single week. Some weeks it’s 15, some weeks it’s zero. That’s why the calculator at HourlyInvestor.com/overtime-calculator/ asks for your average weekly overtime hours. It then projects that out over the year to give you a realistic estimate.
If your hours vary a lot, plug in a few different scenarios — low, medium, and high — and you’ll get a range of what your savings could look like.
Does This Apply to You?
Quick checklist:
- ✅ You’re a W-2 employee (not a 1099 contractor or gig worker)
- ✅ You earn overtime at time-and-a-half (1.5x your regular rate)
- ✅ You work more than 40 hours in a workweek
If all three apply, you’re eligible for this deduction. If you’re an independent contractor, Uber driver, or freelancer — unfortunately this one doesn’t apply to you. It’s for W-2 hourly employees only.
What to Do With the Savings
Once you know your number, make a plan for that money. The worst thing you can do is let it disappear into everyday spending without realizing it.
Some smart moves:
- Put it toward your emergency fund — even $1,000 in savings can keep you out of debt when something unexpected happens
- Open a Roth IRA and let it grow tax-free over decades
- Start investing with a beginner-friendly app — check out our picks for the best investing apps for beginners
Even putting $50–$100/month from your tax savings into a simple index fund can compound into significant wealth over 20–30 years. Start now, while this window is open.
Disclaimer: This is not tax or financial advice. Consult a tax professional for your specific situation. The examples above are estimates based on a 22% federal marginal rate and are for illustrative purposes only. Actual savings will vary based on your income, filing status, deductions, and other factors.