Overtime Premium Pay Deduction
Last updated: March 19, 2026
Deduct overtime premium wages under the OBBB Act. Save up to $6,250 on your taxes.
What Is the OBBB Overtime Deduction?
The OBBB overtime deduction is a new above-the-line federal tax deduction created by the One Big Beautiful Bill Act, effective for tax year 2026. It allows W-2 employees to deduct the premium portion of their overtime pay — the extra 0.5x paid above their regular hourly rate for hours worked beyond 40 per week. The maximum deduction is $12,500 for single filers or $25,000 for married filing jointly. It is reported on Schedule 1-A (Form 1040) and does not require itemizing — all eligible taxpayers can claim it.
Who Qualifies?
The OBBB Act overtime deduction is available to employees who:
- Are covered by the Fair Labor Standards Act (FLSA) - Most hourly and many salaried employees
- Worked more than 40 hours per week and received overtime premium pay
- Have OBBBTT income reported in Box 12 of their W-2
- Meet income requirements (see phase-out rules below)
👀 Look for "OBBBTT" in Box 12 of your W-2. This shows your total overtime premium pay eligible for the deduction.
How Much Can You Deduct?
The deduction amount depends on your filing status and income:
| Filing Status | Maximum Deduction | Phase-out Starts |
|---|---|---|
| Single | $12,500 | $150,000 MAGI |
| Married Filing Jointly | $25,000 | $300,000 MAGI |
| Married Filing Separately | $12,500 | $150,000 MAGI |
| Head of Household | $12,500 | $150,000 MAGI |
Phase-out Formula
Once your MAGI exceeds the phase-out threshold, your deduction is reduced by $200 for every $1,000 over the limit. The deduction phases out completely at $212,500 (single) or $425,000 (married filing jointly).
What Qualifies as "Overtime Premium"?
Only the premium portion of overtime pay qualifies for this deduction:
Example Calculation
• Regular hourly rate: $20.00
• Overtime rate: $30.00 (time and a half)
• Hours of overtime: 200 hours
Premium portion: ($30.00 - $20.00) × 200 = $2,000
This $2,000 would be your OBBB deduction (if under the cap)
✅ Qualifies
- FLSA overtime premium (50% extra)
- Double-time premium portion
- Holiday overtime premium
- Weekend overtime premium
❌ Does Not Qualify
- Regular hourly wages
- Shift differentials
- Bonuses or commissions
- Comp time payments
How to Claim the Deduction
Step 1: Check Your W-2
Look for code "OBBBTT" in Box 12 of your W-2. This amount represents your total overtime premium pay eligible for the deduction.
Step 2: Complete Schedule 1-A
The IRS released Schedule 1-A specifically for OBBB deductions. Enter your overtime premium amount on Line 1.
Step 3: Apply Income Limits
If your MAGI exceeds the phase-out threshold, calculate the reduced deduction using the worksheet provided with Schedule 1-A.
Step 4: Transfer to Form 1040
The total from Schedule 1-A transfers to Schedule 1, Line 8l, then to Form 1040, Line 8.
💡 Pro Tip: If you don't see "OBBBTT" on your W-2 but worked overtime, contact your payroll department. They may need to issue a corrected W-2.
Overtime Tax: Before vs. After OBBB
| Factor | Before OBBB (2025) | After OBBB (2026) |
|---|---|---|
| Overtime premium deduction | Not available | Up to $12,500 (single) |
| Tax form | N/A | Schedule 1-A (Form 1040) |
| Requires itemizing? | N/A | No — above-the-line |
| Max tax savings (24% bracket) | $0 | $3,000 (single) / $6,000 (MFJ) |
| W-2 reporting | OT included in Box 1 wages | OBBBTT code in Box 12 |
Frequently Asked Questions
What is the OBBB overtime deduction?
The OBBB overtime deduction is a new above-the-line federal tax deduction created by the One Big Beautiful Bill Act, effective for tax year 2026. It allows W-2 employees to deduct the premium portion of their overtime pay — the extra 0.5x paid above their regular hourly rate for hours worked beyond 40 per week — up to $12,500 for single filers or $25,000 for married filing jointly.
How much is the OBBB overtime deduction worth?
The maximum OBBB overtime deduction is $12,500 per taxpayer ($25,000 for married filing jointly). The actual tax savings depends on your tax bracket — at a 22% bracket, the maximum deduction saves $2,750; at 24%, it saves $3,000. Only the overtime premium (the 0.5x portion above your regular rate) counts, not the full overtime pay.
Who qualifies for the overtime premium pay deduction?
W-2 employees covered by the Fair Labor Standards Act (FLSA) who worked more than 40 hours per week and received overtime premium pay qualify. Your OBBBTT income must be reported in Box 12 of your W-2, and your modified adjusted gross income (MAGI) must be below $212,500 (single) or $425,000 (married filing jointly) to receive any deduction.
What does OBBBTT mean on my W-2?
OBBBTT is the W-2 Box 12 code that identifies your total overtime premium pay eligible for the OBBB deduction. It stands for 'One Big Beautiful Bill Tax — Overtime/Tips.' If you don't see OBBBTT on your W-2 but you worked overtime, contact your payroll department — they may need to issue a corrected W-2.
What is the income limit for the overtime deduction?
The OBBB overtime deduction begins to phase out at $150,000 MAGI for single filers and $300,000 for married filing jointly. The deduction is reduced by $200 for every $1,000 of MAGI above the threshold. It fully phases out at $212,500 (single) or $425,000 (married filing jointly).
How do I claim the overtime deduction on my taxes?
Claim the OBBB overtime deduction on Schedule 1-A (Form 1040). Enter your OBBBTT amount from W-2 Box 12 on Line 1, apply the income phase-out if applicable, then transfer the total to Schedule 1, Line 8l, which flows to Form 1040, Line 8. This is an above-the-line deduction — you don't need to itemize.
Special Cases
Can railroad workers claim the overtime deduction?
Yes. Railroad employees covered by the Railway Labor Act are eligible if they worked more than 40 hours per week and received premium pay. The Railroad Retirement Board will issue guidance on reporting.
What if I had multiple jobs with overtime?
If you had multiple jobs with overtime, combine all OBBBTT amounts from all W-2s, subject to the overall cap ($12,500 single / $25,000 MFJ) for your filing status.
Do salaried exempt employees qualify?
Most salaried exempt employees don't qualify since they don't receive overtime premium pay. However, some exempt employees may work overtime under collective bargaining agreements and qualify.
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