How the Estimate Works
A detailed breakdown of the mathematical model and legislative assumptions behind our 2026 federal overtime tax estimates.
1. The 1.5× Multiplier Logic
Most federal proposals (like the OBBBA) target the entire wage paid for overtime hours. This means the calculator takes your regular hourly rate and multiplies it by 1.5 to determine the base for the tax exemption.
2. Annual Deduction Caps
The 2026 proposals are designed to benefit middle-class workers, not provide unlimited tax shelters. As such, the total amount of overtime income you can deduct each year is capped:
Any overtime earnings above these caps are taxed at your standard federal income tax rate.
3. The Income Phase-Out Rule
Eligibility for the deduction decreases once your total Modified Adjusted Gross Income (MAGI) hits certain thresholds.
- Single threshold: Starts decreasing at $150,000.
- Married threshold: Starts decreasing at $300,000.
The "100 for 1000" Rule: For every $1,000 you earn over the threshold, your available overtime deduction is reduced by $100. This continues until the benefit is phased out entirely.
The FICA Warning
It is critical to remember that "No Tax on Overtime" generally refers only to Federal Income Tax.
Standard payroll taxes, known as FICA (Social Security at 6.2% and Medicare at 1.45%), will likely still be withheld from your overtime paystub regardless of federal income tax exemptions.
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