Overtime calculator: calculate time and a half, overtime pay and the overtime tax deduction

Time and a half means 1.5 times the regular rate. For a $20.00 regular rate that is $30.00 an hour. The part people get wrong is not the multiplication, it is what you are multiplying and what you have already paid. If you already paid straight time for all 45 hours, you owe the extra half on the 5 overtime hours, not the full 1.5 again.

Both routes land on the same number, so use whichever your payroll system expresses. Either pay 40 hours at the regular rate plus 5 hours at 1.5 times the regular rate, or pay 45 hours at the regular rate plus a half time premium on 5 hours. The second form is the one the regulations are written in, and it is the form that makes the tax deduction below easy to isolate.

Read the last column as the number that matters for both compliance and taxes. It is what the overtime hour costs you beyond straight time, and under the deduction discussed in section 04 it is also the only part the employee can deduct.

The FLSA starts from a wide definition of remuneration and then carves out a short, closed list of exclusions in 29 CFR 778.200 and the sections that follow. If a payment is not on the exclusion list, it belongs in the regular rate. Payroll teams usually get this backwards and assume anything that is not the base hourly rate stays out.

The last two rows are worth sitting with, because they are opposites that look identical on a pay stub. A night differential goes into the regular rate and makes overtime more expensive. A weekend premium paid at 1.5 times or more comes out of the regular rate and can be credited against the overtime you owe. Same word, opposite arithmetic.

The One Big Beautiful Bill Act, Public Law 119-21 (July 4, 2025), added section 225 to the Internal Revenue Code. IRS Notice 2025-69 describes it precisely: section 225 provides an income tax deduction for "qualified overtime compensation", defined in section 225(c) as "overtime compensation paid to an individual required under section 7 of the FLSA that is in excess of the regular rate at which the individual is employed."

Read that definition twice, because two words in it do all the work. Required means the FLSA has to compel the payment. Excess means only the part above the regular rate qualifies. Put together, the deductible amount is the half time premium and nothing else. An employee who earned $9,000 of overtime pay in a year did not earn a $9,000 deduction. They earned a $3,000 one, because two thirds of that figure is straight time for the same hours.

The one third rule, and why it is exactly one third

Notice 2025-69 gives individuals a set of approximation methods for 2025, and one of them is worth knowing even now that separate reporting has arrived. Where a statement shows overtime pay as a single combined figure, meaning the premium bundled together with straight time for the hours past 40, the notice permits the individual to "use one-third of that aggregate dollar amount."

The fraction is not arbitrary. Total pay for an overtime hour at time and a half is 1.5 times the regular rate, and the premium inside it is 0.5 times the regular rate. Half divided by one and a half is one third. The notice extends the same logic upward: where overtime is paid at double time, the appropriate fraction of the separately stated excess is one half, and of the combined figure, one fourth.

This is where most coverage of the deduction goes wrong, and where an employer running payroll for 2026 needs to be careful, because you are now the one reporting the figure. Qualified overtime compensation is limited to what section 7 of the FLSA requires. Generous overtime is still generous. It just is not deductible.

Notice 2025-69 addresses this directly. Employers may provide overtime pay that is not required by 29 USC 207 on their own initiative, under a collective bargaining agreement, or under state law. The notice gives the examples: an employer "may choose to pay double time for hours worked over 40 in a workweek" or "may choose to pay employees an extra amount to work on weekends or holidays." Those amounts sit outside the definition.

The sharper trap is classification. The notice states that overtime must be "paid to an individual who is both covered by and not exempt from the FLSA," and then draws the conclusion in one sentence: "Overtime compensation paid to FLSA-ineligible employees is not qualified overtime compensation within the meaning of section 225(c) with respect to such employment, regardless of applicable State law provisions or other circumstances causing these amounts to be paid."

For a multi-state employer that sentence has teeth. California's daily overtime rules reach some employees who are exempt under federal law, and several states apply narrower exemption tests than the federal one. Overtime you pay to those employees because of state law is real wages, fully taxable, with no deduction attached. Getting the federal exempt status right therefore now affects your employees' tax returns as well as your own exposure, which is one more reason to keep exempt versus non-exempt classifications current.

A salary does not make anyone exempt. If a salaried employee fails the duties test or falls below the exempt salary threshold, they are nonexempt and owed overtime, and you need an hourly regular rate for them every week.

29 CFR 778.113 sets the method, and the detail everyone misses is the divisor. The weekly salary is divided by the number of hours the salary was intended to compensate, not automatically by 40. If you hired someone at $52,000 with a stated expectation of 45 hours, the weekly salary of $1,000 divides by 45, giving a $22.22 regular rate, and you owe an extra $11.11 for each of the 5 overtime hours because straight time for them is already inside the salary. If the salary was stated as covering 40 hours, the divisor is 40, the regular rate is $25.00, and each overtime hour costs a full $37.50.

Same salary, same hours, two very different weekly costs, decided entirely by what your offer letter said the salary covers. Write it down before you need it. Our walkthrough of how to calculate overtime for salaried employees works through the fluctuating workweek variant as well.

Cross-trained staff who bill at different rates create the second most common miscalculation. There is no rule letting you pay overtime at whichever rate the employee happened to be working when hour 41 arrived. Under 29 CFR 778.115 the default is a weighted average: add all straight time earnings for the week, divide by all hours worked, and pay the half time premium on that blended rate.

There is an alternative in 29 USC 207(g)(2) letting you pay the overtime premium at the rate in effect when the overtime hours were worked, but it requires a prior agreement with the employee and the rates have to be bona fide. It is available, it is not automatic, and it is not reliably cheaper than the weighted average.

Federal law has no daily overtime at all. A 12 hour Monday inside a 36 hour week owes nothing extra under the FLSA. Four states disagree, and because 29 USC 218(a) makes the FLSA a floor rather than a ceiling, the more generous rule wins. Remember the point from section 05: this state-only overtime is fully taxable to the employee with no deduction attached.

Two consequences for a distributed team. First, a single national overtime policy written against the federal rule will underpay in all four of these states. Second, hours cannot be averaged across workweeks anywhere: 29 CFR 778.104 forbids it, so a 30 hour week followed by a 50 hour week owes 10 hours of overtime, not zero. The full federal picture is in our FLSA overtime rules guide.

• FLSA overtime rules

  Coverage, the workweek, and the full regular rate picture.

• Exempt vs non-exempt

  The classification that decides who is owed any of this.

• Shift differential pay

  The premium that goes into the regular rate, and the one that does not.

• PTO calculator

  Accrual rates, caps, and why paid leave never counts as hours worked.