Overtime Tax Savings at $40/Hour
Working 10 overtime hours per week at $40/hour (time-and-a-half), you earn $31,200 in annual overtime pay. Under the 2026 overtime tax exemption, you'd save approximately $6,864 in federal taxes — keeping an extra $572 per month.
Pay Details
Tax Details
Compensation Breakdown
Federal tax comparison with and without the overtime exemption.
| Item | Annual | Monthly |
|---|---|---|
| Regular Pay | $83,200 | $6,933 |
| Overtime Pay | $31,200 | $2,600 |
| Total Gross | $114,400 | $9,533 |
| Federal Tax (normal) | $16,628 | $1,386 |
| Federal Tax (OT exempt) | $9,764 | $814 |
| FICA | $8,752 | $729 |
Annual Tax Savings
$6,864
If overtime is exempt from federal income tax
Overtime Pay
Effective Hourly Rate
Monthly Impact
What This Means
The 2026 overtime tax exemption allows qualifying non-exempt employees to exclude overtime pay from federal income tax. At $40/hour, your overtime rate is $60/hour (time-and-a-half). Working 10 overtime hours per week, you earn $31,200 in annual overtime pay. Without the exemption, this overtime income would be taxed at your marginal federal rate. With the exemption, you save $6,864 in federal taxes annually — that's $572 more in your pocket each month. To qualify, you must be a non-exempt employee under the Fair Labor Standards Act (FLSA) and your overtime must exceed 40 hours in a workweek. Important: FICA taxes (6.2% Social Security + 1.45% Medicare) still apply to overtime pay. Self-employed individuals and exempt (salaried) employees generally do not qualify for this exemption.