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To claim the no-tax-on-overtime deduction on your 2026 federal return, find Box 12 on your W-2 and look for code “TT” — that is your qualifying overtime pay total. Enter that amount on Schedule 1 of Form 1040. The deduction is above-the-line (no itemizing required), caps at $12,500 for single filers ($25,000 married filing jointly), and phases out above MAGI $150,000 (single) or $300,000 (joint).
KEY TAKEAWAYS
- Look for Box 12, code “TT” on your 2026 W-2 — that is your employer-reported qualifying overtime pay.
- Deduction cap: $12,500/year for single filers; $25,000 for married filing jointly. Phases out above MAGI $150k / $300k.
- Only FLSA overtime qualifies — hours paid at 1.5x or more your regular rate because you worked over 40 hours in a workweek.
- This is an above-the-line deduction. You do not need to itemize. It stacks on top of the standard deduction.
- Salaried workers who are exempt from FLSA overtime do not qualify, even if their employer voluntarily pays overtime-style bonuses.
- FICA taxes (Social Security, Medicare) on overtime pay are not reduced by this deduction — only federal income tax is affected.
What Is the No-Tax-on-Overtime Deduction?
The OBBBA overtime deduction — part of the One Big Beautiful Bill Act signed in 2025 — lets eligible workers deduct qualifying overtime wages from their federal taxable income for tax years 2025 through 2028. “Qualifying overtime” means pay your employer was legally required to pay under the Fair Labor Standards Act (FLSA): hours worked beyond 40 in a workweek, compensated at a rate of at least 1.5x your regular pay.
For the full eligibility rules and what counts as FLSA overtime, see No Tax on Overtime 2026: How the OBBBA Overtime Deduction Works. This article covers only the claim steps.
Does Your Overtime Qualify?
The deduction applies to FLSA-mandated overtime — not all extra pay is eligible. Run through this quick check before you look at your W-2:
| Situation | Qualifies? |
|---|---|
| Hourly worker paid 1.5x for hours over 40 in a workweek | Yes |
| Non-exempt salaried worker paid overtime under FLSA | Yes |
| Salaried worker exempt from FLSA (manager, executive, many white-collar roles) | No |
| Employer voluntarily pays “overtime” not required by FLSA | No |
| Shift differential, hazard pay, or bonus labeled “OT” | No — must be FLSA-mandated rate |
| Independent contractor / 1099 worker | No — FLSA overtime does not apply to contractors |
If you are unsure whether your job is FLSA-exempt, check with your HR department. The FLSA exemption status determines whether your overtime qualifies, not the dollar amount you were paid.
Step 1: Get Your 2026 W-2 and Check Box 12 “TT”
Your employer reports your qualifying overtime pay on your 2026 W-2 using Box 12 code “TT” — a new code added for tax year 2026. W-2s are due to employees by January 31, 2027.
- Box 12, code “TT”: Dollar amount of your qualifying FLSA overtime pay for 2026. This is the number you will enter on Schedule 1.
- Box 12, code “TP”: Qualifying tip income (separate deduction — not overtime). If you have both, they are reported and claimed separately.
If Box 12 “TT” is blank and you worked overtime in 2026, contact your payroll department. Employers are required to separately code FLSA overtime pay as “TT” for tax year 2026. A blank box likely means a payroll reporting error, not that you don’t qualify.
Step 2: Calculate Your Deduction Amount
Before entering anything on your return, apply the cap and phase-out:
Cap: The deduction maxes out at $12,500 per year for single filers and $25,000 for married filing jointly (combined overtime from both spouses). If Box 12 “TT” shows $15,000 and you file single, you deduct $12,500.
MAGI phase-out: Same thresholds as the tips deduction — $150,000 for single, $300,000 for joint filers. The reduction is $100 per $1,000 of MAGI above the threshold.
| Filing Status | Cap | Full Deduction If MAGI ≤ | Phase-Out Rate |
|---|---|---|---|
| Single / Head of Household | $12,500 | $150,000 | –$100 per $1,000 over |
| Married Filing Jointly | $25,000 | $300,000 | –$100 per $1,000 over |
Example: You file single, MAGI is $158,000, and Box 12 “TT” shows $11,000. MAGI is $8,000 over the threshold, so you reduce the deduction by $800 (8 × $100). You deduct $10,200.
Most hourly workers earning overtime fall well under $150,000 MAGI and receive the full deduction. Your tax software handles the phase-out math automatically.
Step 3: Enter the Deduction on Schedule 1 / Form 1040
Report the overtime deduction on Schedule 1 (Form 1040), Part II — the Adjustments to Income section — on the line designated for the OBBBA overtime deduction. The IRS is finalizing the exact line number for the 2026 return; check irs.gov when the 2026 Schedule 1 is released in fall 2026.
No additional forms are required. Your W-2 Box 12 “TT” amount is your documentation. Retain your W-2 and pay stubs for at least three years.
How to Claim It in Tax Software
Every major tax platform handles Box 12 “TT” in the 2027 filing season. What to expect:
- TurboTax: Enter your W-2 normally. When you reach Box 12 and enter code “TT,” TurboTax prompts you to confirm the overtime was FLSA-mandated, then calculates the deduction and phase-out automatically. Takes about two minutes.
- H&R Block: Same guided flow. In-person option available at H&R Block offices if you want a tax pro to verify the FLSA question for your specific job.
- FreeTaxUSA: You enter Box 12 “TT” manually. The software applies the cap and phase-out. The lowest cost option of the three for most filers.
See our full breakdown at Best Tax Software for 2027: TurboTax vs H&R Block vs FreeTaxUSA.
Can You Claim Both the Tips and Overtime Deductions?
Yes. If you worked a job where you earned both tip income and overtime pay in 2026 — for example, a server who also got overtime hours during a busy holiday week — you can claim both deductions on the same return. They are reported separately on Schedule 1 using their respective Box 12 codes (TP for tips, TT for overtime), and each has its own cap ($25,000 for tips, $12,500 for overtime). The MAGI phase-out applies to each deduction independently.
Frequently Asked Questions
Box 12 code “TT” is a new W-2 code added for tax year 2026. It reports the total amount of FLSA-qualifying overtime pay your employer paid you during the year — the amount eligible for the OBBBA no-tax-on-overtime deduction. You enter this number (up to $12,500 for single filers) on Schedule 1 of Form 1040 as an adjustment to income.
Generally no. Salaried workers classified as exempt under the FLSA (executives, administrative employees, professionals earning above the salary threshold) are not entitled to FLSA overtime, so any extra pay they receive does not qualify for this deduction. If you are a non-exempt salaried worker who does receive FLSA overtime, you may qualify — check with your HR department about your exemption status.
Yes — the OBBBA overtime deduction applies to tax years 2025 through 2028. If you filed your 2025 return and missed the deduction (for example, because your W-2 didn’t yet reflect code “TT” in the first year), you may be able to amend your 2025 return. Consult a tax professional about whether an amended return is worthwhile in your situation.
What matters is whether the overtime was FLSA-mandated (triggered by working more than 40 hours in a workweek), not the specific rate. If your employer voluntarily pays 2x for holidays but you did not exceed 40 hours that week, the pay is not FLSA overtime and does not qualify. If you did exceed 40 hours and the holiday premium was on top of the required 1.5x rate, only the FLSA-required portion coded as “TT” by your employer would qualify.
Possibly not. The OBBBA is federal law. States set their own tax rules and not all states have conformed to the federal overtime deduction. Check your state’s revenue department website or ask a tax professional for your state’s 2026 conformity status before assuming the state deduction applies.
Bottom line: Claiming the overtime deduction is straightforward if Box 12 “TT” is on your W-2. Enter the amount (up to $12,500 single / $25,000 joint), apply the MAGI phase-out if your income is over the threshold, and report it on Schedule 1. If “TT” is missing, call payroll — do not file without it.
This article is for informational purposes only and does not constitute tax advice. Tax rules and IRS form details for tax year 2026 are based on guidance current as of June 2026 and may be updated before the 2027 filing season opens. Verify the latest W-2 codes and Schedule 1 line numbers at irs.gov and consider consulting a CPA or tax professional for your specific situation.
