What is qualified overtime compensation
Qualified overtime compensation is the overtime pay that section 7 of the Fair Labor Standards Act requires above the regular rate at which you are employed, which is the half in time and a half, not your entire overtime check. Generosity beyond the statute does not count. Where an employer pays overtime in excess of what the FLSA requires, only the amount minimally necessary to satisfy 29 USC 207 is qualified overtime compensation. And starting in tax year 2026, the figure your employer prints in box 12 code TT of your Form W-2 is the ceiling on what you may claim, however much premium you were actually paid (FS-2026-13 Q20).
Check what you can actually deduct
Enter what your W-2 shows and what you believe you were paid. The tool applies the year branch, the reporting ceiling, the cap and the income reduction in that order, and tells you the amount you may consider on Schedule 1-A. Nothing is stored and nothing is sent anywhere.
Enter your figures above to see the amount you may consider on Schedule 1-A.
Schedule 1-A divides the income above the threshold by the step and decreases the result to the next lower whole number, so a partial step reduces nothing. Every figure here is recomputed in code from the cited sources and none of it is your filed return.
The IRS worked examples, reproduced
The IRS published its own worked answers in FS-2026-13. Run them through the same code that powers the check above and you should get the same numbers, so you can audit the tool instead of trusting it.
| Premium actually paid | Reported in box 12 code TT | Corrected W-2c furnished | Amount the IRS says you may consider | What this tool returns |
|---|---|---|---|---|
| $10,000 | $10,000 | Not needed | $10,000 (Q19) | |
| $5,000 | $10,000 | Not applicable | $5,000 (Q21) | |
| $10,000 | $5,000 | No | $5,000 (Q22) | |
| $10,000 | $5,000 | Yes | $10,000 (Q22) |
Read the third and fourth rows together. Same pay, same employer error, and the only thing separating the two answers is whether a corrected form arrives.
Who can claim it
Eligibility starts with the FLSA, not with your paycheck. An individual who is ineligible for overtime under the FLSA does not receive qualified overtime compensation regardless of other laws or circumstances such as a collective bargaining agreement providing for overtime pay (FS-2026-13). Employees exempt from the FLSA overtime requirement, including executive, administrative and professional employees, outside sales employees, and employees in certain computer-related occupations, are FLSA overtime-ineligible (IRS). An owner-operator can be caught by the same door. Asked whether an employee-owner is FLSA overtime-eligible, the IRS answers generally no. An employee who owns at least a bona fide 20-percent equity interest in the enterprise in which they are employed, regardless of the type of business organization, and who is actively engaged in its management, is considered a bona fide executive exempt from the 29 USC 207 overtime requirement and so is not FLSA overtime-eligible (FS-2026-13 Q5). An employee who owns a smaller interest might still qualify under one of the other exemptions.
Then come the identity gates, which the tool surfaces in the verdict rather than a footnote. The employee who received the qualified overtime compensation must have a social security number that is valid for employment and issued by the SSA before the due date of the return, including extensions (Q24). A married employee, within the meaning of section 7703, must file a joint return with the spouse to claim the deduction (Q25), and if both spouses receive qualified overtime compensation, both must have a valid social security number and both numbers must be included on the return claiming the deduction (IRS).
The size limits follow. The deduction is limited to $12,500 of qualified overtime compensation per individual tax return, or $25,000 on a joint return (FS-2026-13), and it is reduced once modified adjusted gross income passes $150,000, or $300,000 for joint filers (IRS). The statute reduces the deduction, but not below zero, by $100 for each $1,000 by which modified adjusted gross income exceeds the applicable threshold (Public Law 119-21). For this deduction, modified adjusted gross income means adjusted gross income increased by any amount excluded from gross income under section 911, section 931, or section 933 (Notice 2025-69).
You do not have to itemize. The deduction is available whether the individual itemizes or takes the standard deduction (IRS), because section 63(b) was amended to add the section 225 deduction to the deductions allowed to non-itemizers (Public Law 119-21). And the window is finite. The deduction applies to taxable years beginning after December 31, 2024 (statute), with no deduction allowed under section 225 for any taxable year beginning after December 31, 2028 (statute).
Box 12 code TT is a ceiling, not a receipt
Here is the mechanic most pages skip. Starting in tax year 2026, payors and employers are required to separately report qualified overtime compensation on Form 1099-MISC box 14, Form 1099-NEC box 1d, or, more commonly, Form W-2 box 12 code TT (FS-2026-13). Under section 225(a), an employee can only deduct qualified overtime compensation that the employer included on a properly furnished Form W-2 (IRS). Your pay stubs are not the operative document. The box is.
The entry is a total, not a promise. The amount reported in box 12 code TT is the total qualified overtime compensation paid, which due to other limitations may not be the amount ultimately deductible by the employee (FS-2026-13). In the IRS example, an employer that paid $30,000 of qualified overtime compensation in 2026 must report the whole $30,000 in box 12 code TT even though the overall deduction limit is $12,500, or $25,000 on a joint return (IRS). A large number in that box is not a large deduction.
Tax year 2025 works differently, on purpose. For 2025, Notice 2025-69 provided relief from the separate reporting requirement, so employees might not see an entry for qualified overtime compensation on their 2025 Form W-2 even though they earned it (FS-2026-13), and individuals who did not receive a statement separately reporting it may use any of the methods described in Notice 2025-69 and the Schedule 1-A instructions to calculate the amount (Notice 2025-69). That grace does not roll forward. No reporting relief is available for tax years after 2025 (IRS), and for those years employees may not consider any amount of qualified overtime compensation in excess of what is reported on Forms W-2 box 12 code TT in determining their deduction (IRS). Separately, Notice 2025-62, published November 5, 2025, provided penalty relief under sections 6721 and 6722 for the new information reporting requirements, and that relief applies only for taxable year 2025 (Notice 2025-69).
One narrow case sends the figure elsewhere. The only circumstance in which qualified overtime compensation is reported on Form 1099-MISC or Form 1099-NEC instead of Form W-2 is where the worker is an employee for FLSA purposes but is treated as an independent contractor for Internal Revenue Code purposes (FS-2026-13).
If the amount is missing or wrong
You lose in both directions, which is the part readers do not expect.
Reported too high, you are capped at reality. If the amount reported in box 12 code TT is overstated, the employee may only consider the actual amount of qualified overtime compensation paid by the employer (Q21). In the IRS example, an employer paid $5,000 of qualified overtime compensation but reported $10,000 in box 12 code TT, and the individual may not include more than $5,000 on Schedule 1-A (IRS).
Reported too low, you are capped at the paperwork. If an employee believes the employer omitted or understated the amount, the employee must request a Form W-2c from the employer that properly reports the qualified overtime compensation (Q22). Ask in writing, and ask early. If an employer discovers an error in box 12 code TT, the employer must file Form W-2c with the SSA and furnish it to the employee as soon as possible, and may be subject to information reporting penalties under section 6721 or 6722 (IRS).
And if the corrected form never comes, the money is simply gone. If the employer is unwilling or unable to provide a Form W-2c correcting an omitted or understated amount, the employee is not entitled to use that amount to determine the deduction even though the employee was actually paid it (Q22). Filing a substitute yourself does not rescue it either. Form 4852 does not satisfy the section 225(a) requirement because it is not furnished pursuant to section 6051(a)(19), so an amount reported on Form 4852 cannot be used to determine the deductible amount (Q23). The statute allows the deduction only for qualified overtime compensation included on statements furnished pursuant to section 6041(d)(4) or 6051(a)(19) (Public Law 119-21). The IRS worked both branches. An employer paid $10,000 but reported $5,000, then furnished a corrected Form W-2c reporting $10,000, and the individual may include $10,000 on Schedule 1-A (IRS). Where the employer was unwilling or unable to furnish the W-2c, the individual may only include $5,000 (IRS).
Getting it onto Schedule 1-A
Schedule 1-A (Form 1040) first requires the taxpayer to report the full amount of qualified overtime compensation shown in box 12 code TT and then applies the deduction limits (FS-2026-13), and the deductible amount is the figure landing on the last line of Part III (IRS). So the box 12 number goes on the form even when it is larger than what you end up deducting, because the amount reported there is not necessarily fully deductible (IRS). In the IRS illustration, an employer paid and reported $10,000 of qualified overtime compensation for 2026 and the individual includes the full $10,000 on Part III of Schedule 1-A (IRS).
None of this makes the pay untaxed. The deduction does not exclude or exempt overtime compensation from gross income, and overtime compensation generally remains subject to income tax withholding, social security tax, and federal unemployment tax (FS-2026-13). Whether your state income tax follows the federal treatment is a separate question this page does not answer, and our sibling project noovertimetax.com covers the state conformity side.
Withholding during the year
Your paycheck does not adjust itself. An employer may not reduce withholding on wages to account for the qualified overtime deduction unless the employee furnishes an updated and valid Form W-4 accounting for the expected deduction (FS-2026-13). The 2026 Form W-4 was updated to let employees account for the deduction for qualified overtime compensation in step 4(b) (IRS). Skip the W-4 and you still get the deduction at filing time, just later.
Comp time and federal employees
For state and local government employees who receive compensatory time off under 29 USC 207(o), qualified overtime compensation is not paid when the compensatory time is earned, but when it is paid as wages (FS-2026-13). See the comp time payout rules and estimator. Banking hours in June and cashing them out in December puts the amount in the later year.
Federal employees have a cleaner paper trail than most. Under the OPM FLSA regulations, the one-half times the hourly regular rate portion of the overtime pay formula is the qualified overtime compensation used in determining the deduction (IRS), and FLSA overtime eligibility is typically documented on Standard Form 50, Notification of Personnel Action, block 35, FLSA Category, where E means exempt and N means overtime-eligible (IRS). Pull your latest SF-50 and read block 35 before you do anything else.
Where these numbers come from
The calculator on this page computes every result in code from a vetted constants table, and each constant is transcribed from one of the cited primary sources below rather than typed from memory. The figures quoted in the prose are the same constants, resolved once when the page was built. Three documents do the work. IRS Fact Sheet FS-2026-13, dated August 2026, is the current IRS guidance on the deduction for qualified overtime compensation (fact sheet), and it supersedes the earlier FAQs posted in FS-2026-01 on January 23, 2026 (fact sheet). The underlying law came from the One, Big, Beautiful Bill Act, Public Law 119-21, enacted July 4, 2025 (Notice 2025-69), and the deduction is codified as section 225 of the Internal Revenue Code, added by section 70202 of that act (govinfo text).
I built the eligibility check against the worked examples the IRS published itself, and the code reproduces each one to the dollar, which is why the verification table above exists. The rule that surprised me, and the reason this page exists at all, is that box 12 code TT behaves as a ceiling rather than a receipt. I checked it twice because I did not believe it the first time. A worker whose employer omits the entry and will not issue a W-2c loses the deduction outright, no matter what the pay stubs show.
Where the IRS has not published a position, this page holds instead of guessing. Whether the cap and the income thresholds are indexed for inflation after 2025 is not addressed in FS-2026-13, so you will not find an answer to it here.
Questions people actually ask
Salaried and exempt workers
Being paid a salary is not the test, but most salaried professionals fail the FLSA one. Employees exempt from the FLSA overtime requirement, including executive, administrative and professional employees, outside sales employees, and employees in certain computer-related occupations, are FLSA overtime-ineligible (FS-2026-13). A union contract does not rescue you either, because an individual ineligible for overtime under the FLSA does not receive qualified overtime compensation regardless of other laws or circumstances such as a collective bargaining agreement providing for overtime pay (IRS).
Double time and shift differentials
Where an employer pays overtime in excess of what the FLSA requires, only the amount minimally necessary to satisfy 29 USC 207 is qualified overtime compensation (FS-2026-13). In the IRS double-time example the qualified amount is $100 rather than the $200 premium actually paid (IRS).
Tips earned during overtime hours
Qualified overtime compensation does not include any qualified tip as defined in section 224(d) (Public Law 119-21). Tips run through their own separate deduction, not this one.
A 2025 W-2 with no code TT entry
A blank box is normal for that year. For 2025, Notice 2025-69 provided relief from the separate reporting requirement, so employees might not see an entry even though they earned it (FS-2026-13), and individuals in that position may use any of the methods described in Notice 2025-69 and the Schedule 1-A instructions to calculate the amount (Notice 2025-69). Expect nothing similar later, since no relief is available for tax years after 2025 (IRS).
Whether the deduction lowers your payroll tax
No. The deduction does not exclude or exempt overtime compensation from gross income, and overtime compensation generally remains subject to income tax withholding, social security tax, and federal unemployment tax (FS-2026-13).
Whether you have to itemize
You do not. The deduction is available whether the individual itemizes or takes the standard deduction (FS-2026-13), because section 63(b) was amended to add the section 225 deduction to the deductions allowed to non-itemizers (Public Law 119-21).
Before you file
- Not tax, legal or financial advice
- Figures are estimates, not your official tax return, and your actual deduction may differ
- For ordinary time-and-a-half cases, only the FLSA-required overtime premium, the half of time and a half, is qualified overtime compensation, not your entire overtime pay
- Social Security and Medicare generally still apply to overtime
- Whether your state income tax also honors the deduction depends on your state and is not answered here
- Eligibility also depends on having a social security number valid for employment, and married taxpayers must file a joint return to claim it
- The deduction runs for tax years 2025 through 2028 and the rules may change if Congress or the IRS amends them
- IRS guidance on this deduction has already been revised, so check the last verified date on this page
- Verify with the IRS, your employer payroll department, or a qualified professional before filing
Sources
- Internal Revenue Service, Fact Sheet FS-2026-13, questions and answers on the deduction for qualified overtime compensation
- Internal Revenue Service, questions and answers about the new deduction for qualified overtime compensation (this is FS-2026-01 from January 2026 and is superseded by FS-2026-13, listed above)
- U.S. Government Publishing Office, Public Law 119-21, section 70202
- Internal Revenue Service, Notice 2025-69
Rules verified against IRS Fact Sheet FS-2026-13 (August 2026) on 2026-08-06. ExamNoOvertimeTax is a free tool built by a solo developer as part of the zovo.one toolset.