How the No-Tax-on-Overtime Calculator Works
This calculator estimates how much federal income tax you currently pay on overtime wages — and how much you'd save if the overtime tax exemption becomes law.
Here's the logic:
- We calculate your total annual income (regular pay + overtime pay at 1.5× rate)
- We apply the 2025 standard deduction and federal tax brackets to estimate your marginal rate
- We calculate the federal income tax currently applied to your overtime earnings
- Under the exemption, only FICA (7.65%) would apply to overtime — so we subtract federal income tax from that calculation
- The difference is your estimated annual and per-paycheck savings
Why Your Savings May Differ
This calculator gives a useful estimate, but your actual savings will depend on several factors not included here:
- 401(k) and pre-tax deductions: These reduce your taxable income, which could lower your effective bracket and the savings calculation.
- State income taxes: Most states do not have an overtime exemption. You would still pay state income tax on overtime in states like California, New York, and others.
- Income caps: Some versions of the proposal include caps above which the exemption phases out. Higher earners may receive partial or no benefit.
- Definition of qualifying overtime: The final law may include specific definitions of what qualifies as overtime. Not all overtime pay may be covered in every scenario.
Real-World Examples
To help put the numbers in perspective, here are a few typical scenarios:
Warehouse worker, $17/hr, 10 hours overtime/week:
Annual overtime pay: ~$13,260. At the 12% bracket, federal tax savings would be approximately $1,591/year, or about $133/month.
Hospital nurse, $38/hr, 8 hours overtime/week:
Annual overtime pay: ~$23,712. At the 22% bracket, federal tax savings would be approximately $5,217/year, or about $435/month.
Construction supervisor, $28/hr, 12 hours overtime/week:
Annual overtime pay: ~$26,208. At the 22% bracket, federal tax savings would be approximately $5,766/year, or about $481/month.
What Happens to FICA Under the Proposal?
FICA — Social Security (6.2%) and Medicare (1.45%) — would still apply to overtime pay under the current proposal. The total FICA rate of 7.65% would continue to be withheld from all wages, including overtime.
This is an important distinction. "No tax on overtime" means no federal income tax. It does not mean completely tax-free overtime. For a worker in the 22% bracket, the difference under the exemption would be:
- Now: 22% (federal income tax) + 7.65% (FICA) = 29.65% total federal tax on overtime
- Under the exemption: 0% federal income tax + 7.65% (FICA) = 7.65% total federal tax on overtime
That's a reduction of 22 percentage points on the federal tax burden — a meaningful change for anyone who regularly works overtime hours.