How Much of Your Overtime
Is Actually Tax-Free in 2026?
The OBBBA exempts the first $12,500 of overtime wages from federal income tax. Enter your salary and OT below — see your exact savings in seconds. Applies to police, nurses, teachers, tradespeople, and all hourly workers.
2026 OBBBA Overtime Tax Savings Calculator
See exactly how much federal tax you save under the One Big Beautiful Bill Act
About the OBBBA overtime exemption: The One Big Beautiful Bill Act (signed 2025, effective tax year 2025–2028) exempts the first $12,500 of overtime wages from federal income tax. Social Security and Medicare still apply to overtime. The exemption phases out at $150,000 income (single) / $300,000 (MFJ). State income taxes are not affected — this is a federal-only benefit.
Frequently Asked Questions — OBBBA Overtime Tax
OBBBA Overtime Tax Calculator 2026 — Everything You Need to Know About the New Tax-Free Overtime Rule
For the first time in modern US tax history, a significant portion of overtime pay is now federally tax-exempt. The One Big Beautiful Bill Act (OBBBA), signed into law in 2025 and effective for the 2025–2028 tax years, excludes the first $12,500 of overtime wages from your federal taxable income. For the roughly 20 million Americans who regularly work overtime — police officers, nurses, firefighters, construction workers, factory workers, truck drivers, retail managers, and millions more — this is the most meaningful take-home pay improvement in a generation.
But the question everyone is asking isn’t “is this real?” — it’s “how much do I actually save?” That’s exactly what this calculator answers. Enter your salary, your overtime, your filing status, and your state, and you’ll see the precise dollar amount the OBBBA puts back in your pocket.
How the OBBBA Overtime Tax Exemption Works — Step by Step
Step 1: Determine Your Qualifying Overtime Amount
Qualifying overtime under the OBBBA means wages paid at a premium rate (time-and-a-half or more) for hours worked beyond 40 per week, as defined by the Fair Labor Standards Act. Check your pay stubs — overtime pay is typically broken out as a separate line item. Add up all overtime wages paid during the calendar year. The exemption applies to up to $12,500 of that total. If you earned $18,000 in overtime, the first $12,500 is exempt and the remaining $5,500 is taxed normally.
Step 2: Apply the Standard Deduction and Pre-Tax Deductions First
Your OBBBA overtime exemption is applied after the standard deduction ($16,100 single, $32,200 MFJ in 2026) and after pre-tax deductions like pension contributions, 401(k)/403(b)/457(b) contributions, and health insurance premiums. These deductions stack — maximizing them alongside the OBBBA exemption produces the lowest possible federal taxable income.
Step 3: Check the Phase-Out Against Your Total Income
The exemption phases out at $150,000 total income for single filers and $300,000 for married filing jointly. The reduction is dollar-for-dollar: for every dollar of income above the threshold, the $12,500 exemption shrinks by one dollar. Single filers earning above $162,500 receive no OT exemption. This phase-out is applied to your total gross income (base + overtime + all other income), not just your base salary.
Step 4: Apply 2026 Federal Tax Brackets to Remaining Taxable Income
After all deductions (standard + pre-tax + OBBBA exemption), the remaining taxable income is run through the 2026 marginal brackets. The tax saving equals the marginal rate applied to the exemption amount. A worker whose top dollar of income sits in the 22% bracket saves 22% × $12,500 = $2,750. It’s that clean.
Step 5: FICA Still Applies to All Overtime
Social Security (6.2% up to $184,500) and Medicare (1.45% with no cap) are calculated on your total gross wages regardless of the OBBBA. The exemption does not reduce your FICA base. This is an important distinction: the law exempts OT from income tax, not from payroll taxes. On $12,500 of overtime, you’ll still pay approximately $956 in FICA taxes.
OBBBA Overtime Savings Table — By Salary, OT Amount, and Tax Bracket (2026)
The table below shows estimated federal income tax savings for different salary/overtime combinations, assuming single filer, standard deduction only, no other pre-tax deductions.
| Base Salary | Annual OT Earned | OT Exempt (OBBBA) | Marginal Bracket | Federal Tax Saved |
|---|---|---|---|---|
| $38,000 | $5,000 | $5,000 | 12% | $600 |
| $45,000 | $8,000 | $8,000 | 12% | $960 |
| $52,000 | $12,500 | $12,500 | 12% | $1,500 |
| $60,000 | $10,000 | $10,000 | 22% | $2,200 |
| $68,000 | $15,000 | $12,500 | 22% | $2,750 |
| $75,000 | $20,000 | $12,500 | 22% | $2,750 |
| $90,000 | $18,000 | $12,500 | 22% | $2,750 |
| $120,000 | $20,000 | $12,500 | 24% | $3,000 |
| $140,000 | $15,000 | $10,000* | 24% | $2,400* |
| $160,000 | $12,500 | $2,500* | 24% | $600* |
* Phase-out applies for income above $150,000 (single). Figures are approximate; use the calculator above for your exact result.
Who Benefits Most from the OBBBA Overtime Exemption?
Not all overtime workers benefit equally. Your savings are a product of two variables: how much overtime you work and what marginal tax bracket that overtime falls in. Here’s who comes out ahead:
Maximum Benefit: The 22% Bracket Heavy-OT Worker
A police officer, nurse, firefighter, or tradesperson earning $60,000–$100,000 in base salary with $12,500 or more in annual overtime sits squarely in the 22% bracket for most of their overtime income. They receive the maximum $2,750 in annual federal tax savings. At this income range, the benefit is full and unaffected by the phase-out.
Solid Benefit: The 12% Bracket Worker with Regular OT
A retail manager, warehouse supervisor, truck driver, or factory floor worker earning $40,000–$52,000 with regular overtime will save $600–$1,500 in federal tax annually. Lower bracket means lower savings per dollar, but the benefit is still meaningful — especially for workers who rely heavily on overtime to make ends meet.
Diminishing Returns: High Earners Near the Phase-Out
A single filer with $145,000 in total income (base + OT) is $5,000 into the phase-out zone, reducing their exemption to $7,500 and their maximum savings to $1,800 at 24%. At $160,000, only $2,500 is exempt. Above $162,500 (single), the exemption is gone entirely.
Who Gets Nothing:
- Single filers with total income above $162,500
- MFJ filers with combined income above $312,500
- Self-employed / 1099 contractors (no FLSA overtime classification)
- Salaried exempt employees who don’t receive FLSA overtime pay
- Workers whose overtime is reclassified as bonuses or discretionary pay
OBBBA Overtime Savings by Profession — 2026 Detailed Breakdown
| Profession | Avg Base Salary | Typical Annual OT | OBBBA Exempt Amount | Est. Annual Tax Saved |
|---|---|---|---|---|
| Police Officer | $72,000 | $16,000+ | $12,500 | $2,750 |
| Firefighter | $68,000 | $14,000+ | $12,500 | $2,750 |
| Registered Nurse (RN) | $78,000 | $8,000–$15,000 | $8,000–$12,500 | $1,760–$2,750 |
| EMT / Paramedic | $52,000 | $10,000+ | $10,000–$12,500 | $1,200–$1,500 |
| Electrician (union) | $72,000 | $12,000+ | $12,000–$12,500 | $2,640–$2,750 |
| Plumber (journeyman) | $68,000 | $10,000+ | $10,000–$12,500 | $2,200–$2,750 |
| Truck Driver (OTR) | $58,000 | $8,000–$12,000 | $8,000–$12,000 | $960–$1,440 |
| Factory / Manufacturing | $48,000 | $6,000–$10,000 | $6,000–$10,000 | $720–$1,200 |
| Retail Store Manager | $50,000 | $5,000–$8,000 | $5,000–$8,000 | $600–$960 |
| Construction Supervisor | $75,000 | $12,000+ | $12,000–$12,500 | $2,640–$2,750 |
Will Your Employer Adjust Your Withholding Automatically?
This is the question most workers don’t think to ask — and the answer is: maybe, but don’t count on it. The IRS released updated Publication 15-T withholding tables for 2026 that incorporate the OBBBA overtime exemption. Large employers with modern payroll software (ADP, Paychex, Workday) will generally update their systems to apply the exemption automatically beginning in 2026, reducing withholding on qualifying overtime wages in real time.
However, smaller employers, municipal governments with older payroll systems, and some agencies may continue to withhold at the standard 22% supplemental rate on all overtime throughout the year. In those cases, the OBBBA benefit will materialize when you file your 2026 federal tax return — as a larger refund or a smaller amount owed. The money is yours either way; it’s just a question of when you receive it.
OBBBA Overtime vs. Tips Exemption — What’s the Difference?
The OBBBA contains two separate income exemptions that are frequently confused:
- Overtime exemption: Up to $12,500 of FLSA overtime wages (time-and-a-half for hours over 40/week) is excluded from federal income tax. Applies to W-2 employees in any industry. Phase-out at $150k (single) / $300k (MFJ).
- Tips exemption: Up to $25,000 in qualified tip income is excluded from federal income tax. Applies to workers in tipping industries (food service, hospitality, hair care, etc.). Same phase-out thresholds. Tips still subject to FICA.
The two exemptions stack — a tipped restaurant worker who also works overtime could potentially exclude $37,500 from federal taxable income. However, combined phase-outs still apply based on total income. Workers who receive both tips and overtime should use a combined OBBBA calculator (like ours at ustakehomepay.com) for the most accurate result.
How to Get the Most Out of the OBBBA Overtime Exemption
- Maximize pre-tax contributions alongside the OT exemption. Every dollar you put into a 401(k), 403(b), 457(b), or pension plan reduces your taxable income — which in turn reduces the amount subject to the phase-out calculation, potentially preserving more of the OT exemption.
- Track your overtime separately throughout the year. Keep a running total of your OT income. Once you hit $12,500, additional OT is taxed normally — useful for planning purposes and negotiating extra shifts vs. comp time.
- If you’re near the phase-out threshold, model both scenarios. An officer earning $148,000 total (single) might consider timing a large pre-tax contribution to stay below $150,000 and preserve the full exemption.
- File your 2026 return promptly. If your employer over-withheld on OT during the year, your OBBBA refund will be delivered via your tax return. Filing early means getting that money sooner.
- Don’t confuse the OT exemption with eliminating FICA. Factor in that Social Security and Medicare still apply — your real savings are lower than the gross OT amount times your marginal rate. This calculator does the math correctly so you’re not surprised.
The OBBBA and Overtime: What Employers Need to Know
For HR and payroll professionals reading this: the OBBBA creates a new payroll complexity. The overtime exemption requires payroll systems to identify and segregate overtime wages, apply the $12,500 annual cap correctly, track total compensation against the phase-out thresholds, and reduce federal income tax withholding accordingly — all in real time across a workforce with varying OT levels.
The IRS provided supplemental withholding guidance in late 2025 to assist. Employers who fail to implement the updated withholding tables are not exposing employees to tax liability (employees can still claim the exemption on their return), but they will generate frustrated employees who expected to see fatter OT paychecks from day one. Proactive communication about how and when your payroll system will reflect the OBBBA benefit is strongly recommended.
About This OBBBA Overtime Tax Savings Calculator
This calculator applies 2026 IRS federal tax brackets marginally to taxable income after the standard deduction, pre-tax deductions, and the OBBBA overtime exclusion (with phase-out applied against total gross income). FICA is calculated on total gross wages independently — the OBBBA does not reduce the FICA base. State income tax is applied using your state’s estimated effective rate; the OBBBA has no effect on state taxes. The “savings” figure is the difference between your federal income tax with and without the OBBBA exemption applied.
Results are estimates for budgeting and planning. Your actual 2026 tax liability will be calculated on your Form 1040 based on your complete tax situation, including all income sources, credits, and deductions. Consult a CPA for official tax guidance.