No Tax on Overtime Income Limit: Full Phaseout Chart

What Is the No Tax on Overtime Income Limit?

The no tax on overtime income limit is not a hard cutoff — it is a phaseout range. Under IRC §225 (P.L. 119-21 §70202), the overtime deduction starts shrinking at $150,000 MAGI for single and head of household filers, and $300,000 MAGI for married filing jointly. It is completely eliminated at $275,000 (single/HoH) and $550,000 (MFJ). Between those points, the deduction is reduced by $100 for every $1,000 of MAGI over the threshold.

Separate from the income phaseout, the deduction has an annual dollar cap: $12,500 for single and head of household filers, and $25,000 for married filing jointly. Both limits apply — your actual deduction is the lower of your overtime premium and the post-phaseout remaining cap. For a complete picture of all rules, see the No Tax on Overtime complete guide.

The Cap and the Phaseout: Two Separate Limits

Many workers confuse the annual cap with the income phaseout. They are distinct limits that both apply, in order. See all caps and limits in one place, including the tips deduction caps.

The annual cap limits how much overtime premium you can deduct regardless of income. If your overtime premium was $8,000, your cap is $8,000. If your premium was $20,000, your cap is $12,500 (single/HoH) or $25,000 (MFJ).

The income phaseout further reduces whatever cap you have, based on your MAGI. If your MAGI is $190,000 (single), the phaseout reduces your effective cap by $4,000 — leaving a maximum deduction of $8,500. Your actual deduction is the lower of your overtime premium and that reduced cap.

Workers earning below $150,000 (single/HoH) or $300,000 (MFJ) face only the annual cap — no income restriction applies. There is no no tax on overtime limit based on income until those thresholds. The two limits operate in sequence: cap first, phaseout second.

How the Phaseout Formula Works

The phaseout formula is specified on Schedule 1-A, lines 11–12. Four steps:

1. Calculate excess MAGI: MAGI − $150,000 (single/HoH) or MAGI − $300,000 (MFJ)
2. Floor division by $1,000: Drop any decimal — only complete $1,000 increments count
3. Multiply by $100: Each full $1,000 of excess reduces the cap by $100
4. Subtract from cap, floor at $0: deduction = max(0, cap − reduction)

Floor division example: A single filer at $162,500 MAGI has an excess of $12,500. floor($12,500 ÷ $1,000) = 12 (not 12.5 — the extra $500 is dropped). Reduction = 12 × $100 = $1,200. Maximum deduction = $12,500 − $1,200 = $11,300.

This means every full $1,000 above the threshold costs $100 of deduction. A single filer needs $125,000 in excess MAGI to lose the full $12,500 cap (125 steps × $100 = $12,500), which is a MAGI of exactly $275,000. An MFJ filer needs $250,000 in excess over $300,000 — a MAGI of $550,000 — to eliminate the full $25,000 cap.

To understand how the deductible premium is calculated before the cap and phaseout apply, see the 0.5x premium mechanics.

Phaseout Chart: Single and Head of Household

This table is the complete no tax on overtime phase out chart for single and head of household filers. The Maximum Deduction column is the post-phaseout cap — your actual deduction is the lower of your overtime premium and this number. Use the calculator to get your exact savings figure.

To estimate savings: multiply the Maximum Deduction Remaining (or your actual overtime premium, whichever is lower) by your marginal tax rate. Most single/HoH filers in this MAGI range fall in the 24% bracket — a $10,000 remaining deduction at 24% = $2,400 in potential federal income tax savings.

IRS guidance groups Head of Household with Single filers for the $150,000/$275,000 phaseout thresholds, consistent with the deduction cap structure. Final IRS guidance may clarify this. See Example E6 below for a worked HoH scenario.

Phaseout Chart: Married Filing Jointly

For MFJ filers, the phaseout starts at $300,000 MAGI and the annual cap is $25,000. The threshold and cap are per return, not per spouse — if both spouses earn overtime, only the combined household MAGI is compared to the $300,000 threshold. Source: IRS FAQ A4.

Married filing separately filers are not eligible — the deduction is $0 regardless of income or overtime earned. (IRS FAQ A5)

Worked Examples at Every Bracket

Each example follows the same eight-step calculation used throughout this site. All figures are verified against the calculator. The examples cover the full phaseout range: no reduction, partial phaseout, deep phaseout, full elimination, HoH, MFJ, and cap-binding with bracket-spanning.

Example E1 — Single, No Phaseout ($80,000 MAGI)

Inputs: Single, $25/hr, 10 OT hours/week, 50 weeks/year, $80,000 MAGI.

1. OT premium per hour: $25 × 0.5 = $12.50
2. Weekly premium: $12.50 × 10 = $125.00
3. Annual premium: $125 × 50 = $6,250
4. Cap check: $6,250 < $12,500 — no cap applied
5. Phaseout: $80,000 < $150,000 threshold — $0 reduction
6. Deduction: $6,250
7. Marginal rate: 22% (taxable income approx. $64,250 after $15,750 standard deduction)
8. Federal income tax savings: $6,250 × 22% = $1,375.00

Example E2 — Single, Partial Phaseout ($160,000 MAGI)

Inputs: Single, $25/hr, 10 OT hours/week, 50 weeks/year, $160,000 MAGI.

1. OT premium per hour: $25 × 0.5 = $12.50
2. Weekly premium: $12.50 × 10 = $125.00
3. Annual premium: $125 × 50 = $6,250
4. Cap check: $6,250 < $12,500 — no cap applied
5. Phaseout: floor(($160,000 − $150,000) ÷ $1,000) × $100 = 10 × $100 = $1,000 reduction
6. Deduction: $6,250 − $1,000 = $5,250
7. Marginal rate: 24% (taxable income approx. $144,250)
8. Federal income tax savings: $5,250 × 24% = $1,260.00

Compared to E1 (same pay, lower income), the phaseout cost this worker $115 in lost savings.

Example E3 — Single, Deep Phaseout ($200,000 MAGI)

Inputs: Single, $25/hr, 10 OT hours/week, 50 weeks/year, $200,000 MAGI.

1. OT premium per hour: $25 × 0.5 = $12.50
2. Weekly premium: $12.50 × 10 = $125.00
3. Annual premium: $125 × 50 = $6,250
4. Cap check: $6,250 < $12,500 — no cap applied
5. Phaseout: floor(($200,000 − $150,000) ÷ $1,000) × $100 = 50 × $100 = $5,000 reduction
6. Deduction: $6,250 − $5,000 = $1,250
7. Marginal rate: 24% (taxable income approx. $184,250)
8. Federal income tax savings: $1,250 × 24% = $300.00

The phaseout reduced this worker’s savings from $1,375 (at $80,000 MAGI, E1) down to $300 — an $1,075 reduction in benefit from the same overtime schedule.

Example E4 — Married Filing Jointly, Partial Phaseout ($350,000 MAGI)

Inputs: MFJ, $25/hr, 10 OT hours/week, 50 weeks/year, $350,000 MAGI.

1. OT premium per hour: $25 × 0.5 = $12.50
2. Weekly premium: $12.50 × 10 = $125.00
3. Annual premium: $125 × 50 = $6,250
4. Cap check: $6,250 < $25,000 MFJ cap — no cap applied
5. Phaseout: floor(($350,000 − $300,000) ÷ $1,000) × $100 = 50 × $100 = $5,000 reduction
6. Deduction: $6,250 − $5,000 = $1,250
7. Marginal rate: 24% (MFJ taxable income approx. $318,500 after $31,500 standard deduction)
8. Federal income tax savings: $1,250 × 24% = $300.00

Note: the same worker filing as single at $350,000 MAGI would have a deduction of $0 (fully phased out above $275,000). The MFJ threshold gives married filers a substantially higher phaseout range before benefit is reduced.

Example E5 — Single, Fully Phased Out ($275,000 MAGI)

Inputs: Single, $25/hr, 10 OT hours/week, 50 weeks/year, $275,000 MAGI.

1. OT premium per hour: $25 × 0.5 = $12.50
2. Weekly premium: $12.50 × 10 = $125.00
3. Annual premium: $125 × 50 = $6,250
4. Cap check: $6,250 < $12,500 — no cap applied
5. Phaseout: floor(($275,000 − $150,000) ÷ $1,000) × $100 = 125 × $100 = $12,500 reduction
6. Deduction: $6,250 − $12,500 = negative → clamped to $0
7. Marginal rate: 32% (taxable income approx. $259,250)
8. Federal income tax savings: $0

At $275,000 MAGI the deduction is fully eliminated. Any single or head of household filer at or above this income receives no benefit from the overtime deduction, regardless of overtime hours worked.

Example E6 — Head of Household, Partial Phaseout ($175,000 MAGI)

Inputs: Head of household, $30/hr, 15 OT hours/week, 50 weeks/year, $175,000 MAGI.

1. OT premium per hour: $30 × 0.5 = $15.00
2. Weekly premium: $15.00 × 15 = $225.00
3. Annual premium: $225 × 50 = $11,250
4. Cap check: $11,250 < $12,500 HoH cap — no cap applied
5. Phaseout: floor(($175,000 − $150,000) ÷ $1,000) × $100 = 25 × $100 = $2,500 reduction
6. Deduction: $11,250 − $2,500 = $8,750
7. Marginal rate: 24% (HoH taxable income approx. $151,375 after $23,625 standard deduction)
8. Federal income tax savings: $8,750 × 24% = $2,100.00

HoH and Single share the same phaseout thresholds. Head of household filers use the $150,000 phaseout start and $275,000 endpoint — the same as single filers, not MFJ’s $300,000/$550,000. The differences between HoH and Single are in standard deductions and tax brackets, not in phaseout thresholds.

Example E7 — Single, Cap Binding + Bracket-Spanning ($120,000 MAGI)

Inputs: Single, $100/hr, 10 OT hours/week, 50 weeks/year, $120,000 MAGI.

1. OT premium per hour: $100 × 0.5 = $50.00
2. Weekly premium: $50 × 10 = $500.00
3. Annual premium: $500 × 50 = $25,000
4. Cap check: $25,000 > $12,500 single cap — cap binds at $12,500
5. Phaseout: $120,000 < $150,000 threshold — $0 reduction
6. Deduction: $12,500
7. Marginal rate: Bracket-spanning — without deduction, taxable income = $104,250 (in the 24% bracket). With $12,500 deduction, taxable income = $91,750 (drops into the 22% bracket). Savings span both rates.
8. Federal income tax savings: tax($104,250) − tax($91,750) = $17,867 − $15,099 = $2,768.00

This example shows two things. First, the cap binds before the phaseout ever applies — high earners below $150,000 hit the $12,500 cap, not an income restriction. Second, when the deduction crosses a bracket boundary, savings must be computed as the difference in total tax, not a flat rate × deduction. The calculator handles bracket-spanning automatically.

MAGI vs. AGI: What Counts Against the Limit

The phaseout is based on your Modified Adjusted Gross Income (MAGI). For most W-2 employees, MAGI equals AGI — your total income from Form 1040 before most deductions. The two figures diverge only for workers with IRA contributions, student loan interest, rental losses, and similar items. For a typical W-2 overtime worker, MAGI = AGI.

Two separate questions apply when thinking about MAGI and the overtime deduction:

• Does overtime pay count toward MAGI? Yes. Overtime pay is wages, and wages are always included in MAGI. Earning more overtime increases your MAGI, which can push you further into the phaseout range. Enter your total income including overtime when using the calculator.
• Does the overtime deduction reduce MAGI? No. The overtime deduction is a below-the-line deduction claimed on Schedule 1-A (flowing to Form 1040 Line 13b). It reduces your taxable income only — not AGI or MAGI. The phaseout is computed from your pre-deduction MAGI. (Source: IRS Schedule 1-A)

Check your eligibility requirements to confirm all other conditions before computing the phaseout.

What If You’re Right at the Phaseout Edge?

Because the formula uses floor division, being just above the threshold does not eliminate your deduction. Partial $1,000 increments are dropped. This matters if your MAGI lands a few hundred dollars above $150,000 (or $300,000 for MFJ).

Examples for a single filer:

• $150,999 MAGI: excess = $999. floor($999 ÷ $1,000) = 0. Reduction = $0. Full $12,500 cap applies.
• $151,000 MAGI: excess = $1,000. floor($1,000 ÷ $1,000) = 1. Reduction = $100. Maximum deduction = $12,400.
• $151,999 MAGI: floor($1,999 ÷ $1,000) = 1. Reduction = $100. Maximum deduction = $12,400 (same as $151,000).
• $152,000 MAGI: floor($2,000 ÷ $1,000) = 2. Reduction = $200. Maximum deduction = $12,300.

The takeaway: is there a cap on no tax on overtime? Yes — but it phases out gradually, not as a cliff. Going one dollar over $150,000 reduces your maximum deduction by at most $100. The deduction disappears entirely only at $275,000 (single/HoH) or $550,000 (MFJ). Source: Schedule 1-A, lines 11–12.