What Counts as Qualified Overtime? The FLSA Rules Behind the Deduction
In one paragraph: Only overtime that section 7 of the Fair Labor Standards Act requires, and only the part above your regular rate, is "qualified overtime compensation." If you are exempt from FLSA overtime, or your overtime comes only from state law or a union contract, it doesn't qualify.
The FLSA test in the IRS's words
The IRS's FAQ defines qualified overtime compensation as overtime pay required under section 7 of the Fair Labor Standards Act (29 U.S.C. § 207) that exceeds the regular rate at which the individual is employed. It adds that to be required by the FLSA, overtime must be paid to an individual who is both covered by the FLSA and not exempt from its overtime requirement. Those individuals generally must receive pay at not less than one and one-half times their regular rate for hours worked over 40 in a workweek.
What's in, what's out
| Situation | Qualified? |
|---|---|
| Hourly nonexempt worker paid 1.5× for hours over 40 in a week | Yes: the 0.5× premium counts |
| Same worker, employer pays 2× for overtime | Only the 0.5× that the FLSA required |
| Straight-time portion of overtime hours | No: that is your regular rate |
| Exempt salaried employee, even if paid extra for long hours | No: no FLSA overtime is required |
| Overtime required only by a union contract | No: not required by FLSA section 7 |
| Overtime required only by state law (for example a daily-overtime rule) | No, to the extent the FLSA didn't require it |
| Federal employee in FLSA category "N" (nonexempt) | Yes, subject to the OPM computation rules |
Worked example: who has more qualified overtime?
Two coworkers earn $22 an hour. Over a year each works 300 hours over 40 in a week, paid at time-and-a-half. Worker A is nonexempt: qualified overtime is 22 × 0.5 × 300 = $3,300. Worker B was reclassified as exempt mid-year after a promotion, but still received $6,600 of "overtime" under the company policy: since FLSA overtime wasn't required for B after the promotion, that portion is not qualified.
How to find the right number
- Look for the employer's separate reporting: W-2 box 12 code TT on 2026 forms.
- For 2025, check whether your employer separately reported it in box 14 or an online portal, or use the methods in IRS Notice 2025-69 and the Schedule 1-A instructions.
- If you have a union contract or state-law overtime, ask HR how much of the overtime premium was required by the FLSA.
- Keep pay stubs and time records in case the IRS asks.
Misclassifying yourself can cause an incorrect deduction. If you are not sure whether you are exempt, use the Department of Labor resources the IRS recommends, or ask a payroll or tax professional.
Frequently asked questions
Does overtime over 8 hours a day count?
Only if the FLSA required it. The FLSA generally requires overtime for hours over 40 in a workweek. If your overtime is required only because of a state daily-overtime rule, it is not required by section 7 of the FLSA, and the IRS says amounts not required by the FLSA are not deductible.
What if my employer pays overtime after 8 hours a day but I also work over 40 a week?
The qualified amount is limited to the premium the FLSA itself requires for hours over 40 in the workweek. Ask your employer or payroll provider how they report the FLSA portion, and see the IRS instructions to Schedule 1-A.
How do I know if I am FLSA exempt?
Whether you are covered by and not exempt from the FLSA depends on your occupation, duties and earnings. The IRS points to the Department of Labor's Fact Sheet #14 on coverage and the Handy Reference Guide to the FLSA. Federal employees can look at block 35 of their Standard Form 50: "N" means nonexempt and "E" means exempt.
Do salaried workers get qualified overtime?
Salaried employees who are nonexempt under the FLSA are entitled to overtime and can have qualified overtime. Salaried employees who are exempt are not.
Are bonuses and commissions overtime?
Not by themselves. Only the overtime premium required by the FLSA on hours over the overtime threshold counts. Your employer's payroll system calculates the regular rate, which may include some bonuses.
Sources and citations
Every dollar figure on this page was checked against the official pages below on November 14, 2026. If an agency updates its guidance, the agency page controls.
- IRS FS-2026-01: Questions and answers about the deduction for qualified overtime compensation
- IRS Publication 6133 (Rev. 3-26): tips and overtime deductions
- IRS Fact Sheet FS-2025-03: Working Families Tax Cuts — Tax deductions for working Americans and seniors
- IRS: What to know about the No Tax on Overtime deduction
- U.S. Department of Labor: Handy Reference Guide to the Fair Labor Standards Act
- IRS: General Instructions for Forms W-2 and W-3 (2026)