Overtime is taxed. It is still taxed in 2026, in every paycheck, at the same rate as your regular hours, and it still counts as wages for Social Security and Medicare. What changed is what happens on your return: you may now deduct the premium half of your overtime from taxable income, up to $12,500 ($25,000 jointly) a year, and this page runs that worksheet for you.
The three numbers that matter
$12,500 is the most one return can deduct for overtime, or $25,000 on a joint return. That ceiling belongs to the overtime rule on its own. The new tips deduction is a separate line with its own ceiling, so a nurse who has both is not choosing between them.
$150,000 is the modified adjusted gross income where the deduction starts to shrink. Above it the worksheet takes $100 off for every $1,000 of income over the line. The figure for a joint return is $300,000.
The premium, not the pay. Notice 2025-69 says the deductible piece is the “‘half’ portion of the ‘one and one-half times’ amount (the FLSA Overtime Premium)”. An hour paid at $57 when your rate is $38 does not put $57 into the deduction. It puts $19 there.
Run the IRS worksheet on your own numbers
Form 1040 gained a new schedule this year, Schedule 1-A, and Part III of it is the overtime calculation. It runs from line 14 to line 21 and carries one rule a home spreadsheet usually gets wrong: line 19 divides by $1,000 and then drops to the next lower whole number. The tool below follows those lines in order.
The two ceilings are written into the statute rather than adjusted for inflation, so $12,500 and $150,000 are the figures for the 2026 return as well as the 2025 one. The 2026 edition of Schedule 1-A had not been published when this page was last checked against the IRS documents on October 13, 2026, so line numbers could move even though the amounts cannot.
The premium or the time-and-a-half total, depending on the choice above.
Use this only with the third option above.
Straight time, before the 1.5.
Hourly and non-exempt is usually yes. Salaried RNs are often exempt.
Adjusted gross income, with a few exclusions added back.
For a 2025 return choose the first one: reporting was not required that year.
Only used with the second choice above.
Estimates only. The deduction lowers taxable income at filing time. It does not exempt overtime from tax in the paycheck.
Who does not get this, including a lot of nurses
Section 225 of the Internal Revenue Code does not ask whether you were paid extra for long shifts. It asks whether that extra pay was required by section 7 of the Fair Labor Standards Act. Four situations fail that test, and each one is common in travel nursing.
- You are exempt and salaried. The IRS fact sheet updated on August 6, 2026 states that an employee who is ineligible for overtime under the FLSA receives no qualified overtime compensation “regardless of other laws or circumstances”, and it names a collective bargaining agreement as one of those circumstances. A contract that promises you time and a half does not open the deduction.
- You are on a 1099. A genuine independent contractor has no FLSA employer obligation, so nothing is required under section 7. If your agency pays you as a contractor, overtime hours do not create this deduction, whatever the invoice calls them.
- It is state-mandated daily overtime. California counts a shift over eight hours, but the notice says overtime paid to FLSA-ineligible staff is not qualified “regardless of applicable State law provisions or other circumstances causing these amounts to be paid”.
- It is double time or a holiday premium. The notice is direct: the one and one-half portion required by the FLSA may be qualified overtime, but “payments in excess of the FLSA-required premium are not”. The extra half of double time is not deductible.
One more door people walk into: a stipend is not overtime. Housing stipends and per diem appear nowhere in this worksheet. They are a different rule with a different test, and mixing them in is exactly what a return review looks for.
What it is actually worth
A deduction lowers taxable income, so its value is your bracket multiplied by the amount you can actually claim. At the full $12,500 ceiling:
| Top federal bracket | Tax saved at the $12,500 cap |
|---|---|
| 10% | $1,250 |
| 12% | $1,500 |
| 22% | $2,750 |
| 24% | $3,000 |
| 32% | $4,000 |
| 35% | $4,375 |
| 37% | $4,625 |
Worked example: $9,000 of combined time-and-a-half pay for overtime hours is $3,000 of qualified premium. With income below the threshold and a 22% bracket that is $660 back, not $9,000 untaxed. It is a refund-sized change, not a paycheck-sized one.
Your paycheck will not look different
Nothing in section 225 stops the tax at source. The fact sheet says overtime compensation is not excluded or exempt from wages “for purposes of employment taxes including income tax withholding, social security, and federal unemployment taxes”. If you want the money during the year rather than at filing, the IRS updated the Tax Withholding Estimator so an employee can account for the deduction there and file a new Form W-4.
2025 was the free year. After it, you need the W-2.
For the 2025 return your employer was not required to report qualified overtime anywhere, which is why the tool asks how your stub shows the pay and lets you rebuild the figure.
From 2026 that flips. The employer must put the amount in Form W-2, box 12, using code TT, and the IRS states that an employee “may not consider any amount of qualified overtime compensation in excess of what is reported” there. Two consequences:
- A code TT entry can be bigger than your deduction. The fact sheet’s own example has an employer reporting $30,000 for a single filer whose ceiling is $12,500.
- If payroll never adds code TT, the IRS says no relief is available for years after 2025. Ask for a corrected W-2 before you file.
Two small doors that catch people
You, or your spouse for a joint return, must have a valid Social Security number for the deduction, issued before the return’s due date including extensions. And a married couple filing separately gets nothing: section 225 applies only on a joint return. Everything else is forgiving. The deduction is taken before you reach itemizing, so it works whether you itemize or take the standard deduction.
Does your state do this too?
Not automatically. Section 225 is a federal rule and each state decides whether its own income tax follows a federal change like this, so there is no published list to point at. Treat the state side as an open question and check the states you file in, which is where the state tax table helps. A multi-state traveler should expect the federal refund to move and the state bills not to.
When this rule ends
Notice 2025-69 states that both new deductions are available for tax years beginning after December 31, 2024 and ending before January 1, 2029. Practically: the 2025 through 2028 returns, the last of them filed in 2029.
Frequently asked questions
Is overtime taxed at a higher rate than my regular pay? No. A heavy overtime week can make the withholding look like a rate jump, but the rate schedule does not have a special bracket for overtime hours.
Do I have to itemize to claim this? No. It goes on Schedule 1-A and works with the standard deduction.
My agency calls it overtime but I am self-employed. Then it is not qualified overtime under section 225, because no FLSA obligation sits behind it. Your Schedule C deductions are the route instead, and the mileage and worksheet pages below cover that ground.
Where do I find my overtime premium? On most nursing stubs it is the difference between what the overtime hours paid and what the same hours would have paid at your regular rate. If the stub shows only one time-and-a-half total, Notice 2025-69 lets you take one third of it.
Can I claim it on a return I already filed? An amended return is the route, and it is worth the effort only once you know you were FLSA-eligible. The tool tells you the size of the prize first.
Next step: Use the deduction worksheet to list everything else you can claim this year.
Related guides
Overtime is one line in a travel nurse return. These are the others.
- Travel Nurse Paycheck and Take-Home Pay CalculatorOvertime raises the gross. This shows what lands.
- Travel Nurse Tax Deduction WorksheetThe other deductions, W-2 versus 1099.
- 2026 Estimated Tax Due DatesFor 1099 nurses, who sit outside this deduction.
- Mileage Deduction CalculatorSelf-employed nurses: this is the lane instead.
- Travel Nurse Taxes by StateWhether your state follows the federal change.
- Is Per Diem Taxable?Stipends are a separate rule and are not overtime.
- Is Shift Differential Taxed? 2026 Rules and CalculatorThe premium itself is not deductible, but it lifts the regular rate the deduction multiplies
- 2026 Tax Bracket Calculator: Your Real Rate, Not Your BracketOvertime has no special rate. It is taxed at the band your income already reaches, and that band is what this panel finds
Sources
- IRS Notice 2025-69: the premium-only definition, the one third method, the state-law exclusion, and the years December 31, 2024 to January 1, 2029
- IRS Fact Sheet on the qualified overtime deduction, updated August 6, 2026: FLSA eligibility, W-2 box 12 code TT, the $30,000 reporting example, and that employment taxes still apply
- 2025 Schedule 1-A (Form 1040), Part III: lines 14a through 21: the cap, the threshold, and the whole-thousand rule the tool follows
- IRS Q and A on the new qualified overtime deduction: who may claim it and how to compute it without employer reporting
- P.L. 119-21 section 70202, adding 26 U.S.C. 225: the statute behind the premium definition, the dollar cap and the joint return rule