How to Calculate the Amount to Enter
To find the deductible portion for time-and-a-half overtime, take the extra pay (which is half of your regular rate) and divide it by the total overtime pay (which is one and a half times your regular rate). So you calculate 0.5 ÷ 1.5, which equals one-third. That means the premium portion is one-third of your total overtime pay.
For double-time overtime, you earn twice your regular rate. The extra pay is equal to your regular rate (1 part), but the IRS rule says only half of that extra counts as the deductible premium. So you take half of the extra pay and divide it by the total overtime pay (which equals two times your regular rate). So you calculate 0.5 ÷ 2, which equals one-fourth. That means the deductible portion is one-fourth of your total overtime pay.
Since 2025 W-2s do not show a separate overtime premium, you must calculate it manually:
- Check your pay stubs or employer records for total overtime pay.
- Determine the premium portion:
- If your employer lists “overtime premium,” use that amount.
- If only total overtime pay is shown:
- For time-and-a-half, divide total overtime pay by 3.
- For double time, divide total overtime pay by 4.
- Apply the limit:
- If the premium portion exceeds $12,500 (single) or $25,000 (joint), enter the maximum allowed.
- Program Entry:
- Navigate to:
Federal → Deductions → Additional Deductions → No Tax on Overtime - Enter the calculated amount.
- NOTE: If both you and your spouse have overtime entries, combine the amounts to make one entry in the program. Note the limitations above.
- Navigate to:
Examples
- Andrew earns $15,000 in total overtime pay at time-and-a-half. Premium portion = $15,000 ÷ 3 = $5,000. Deduction = $5,000.
- Brad earns $20,000 in overtime at double time. Premium portion = $20,000 ÷ 4 = $5,000. Deduction = $5,000.
- Maria earns $40,000 in overtime at time-and-a-half. Premium portion = $40,000 ÷ 3 ≈ $13,333. Deduction capped at $12,500.