The basic rule, in nurse terms
For tax years 2025 through 2028 you can deduct qualified overtime compensation from your federal taxable income. Qualified overtime is the premium your employer paid on overtime that the federal Fair Labor Standards Act (FLSA) required. If you earn $40 an hour and $60 for overtime, only the extra $20 per overtime hour is deductible. The $40 base was always taxable and still is.
The cap is $12,500 per year ($25,000 if married filing jointly). At a $20 premium, that's 625 overtime hours — roughly 12 a week, every week. Most nurses land under the cap; some ICU and ER nurses hit it.
Which nurse overtime is "FLSA-required"
This is where nursing is different from most jobs, because hospitals can choose between two federal overtime systems.
Standard 40-hour workweek. Overtime is any hour over 40 in the workweek. On three 12-hour shifts you're at 36 hours — no federal overtime. Pick up a fourth shift and hours 41–48 are overtime. The premium on those eight hours is deductible. Note that if your hospital pays time-and-a-half for the extra four hours of a 12-hour shift beyond 8 (some union contracts do), those four hours are not FLSA overtime unless they also push you over 40 for the week, so their premium doesn't count.
The 8-and-80 rule (FLSA section 7(j)). Hospitals and residential care facilities can elect a 14-day period instead of a 7-day week, paying overtime for hours over 8 in a day or over 80 in the 14 days, whichever is greater. Under this system every hour 9 through 12 of a 12-hour shift is federal overtime. The IRS has confirmed that overtime paid under section 7(j) is qualified overtime compensation, so the premium on those hours is deductible. If you work three 12s a week under 8/80, that's 12 overtime hours a week you can deduct the premium on — even though you never crossed 40.
Your pay stub or HR can tell you which system your employer uses. It changes the answer a lot, and your W-2 code TT amount will reflect it.
Shift differentials, charge pay and bonuses
Night, weekend and charge-nurse differentials aren't overtime, so they aren't deductible on their own. But they raise your FLSA regular rate, and the overtime premium is half of the regular rate — so the premium on your overtime hours gets bigger. A nurse at $40 base with a $6 night differential has a $46 regular rate on those shifts, and a $23-an-hour deductible premium instead of $20. Non-discretionary bonuses (retention, attendance) also get folded into the regular rate; discretionary ones don't.
Mandatory overtime, on-call and callbacks
Whether overtime was voluntary or mandated doesn't matter. What matters is whether the hours were over the FLSA threshold. Mandatory holdover that takes you to 44 hours counts. Callback pay counts if the hours worked push you over. On-call pay for hours you weren't working generally isn't overtime.
Travel nurses
Travel nurses are usually W-2 employees of the staffing agency, so the same rules apply: FLSA overtime paid by the agency, premium portion deductible, reported in Box 12 code TT. The wrinkle is that travel pay packages split into taxable hourly wages and non-taxable stipends. Only the hourly wage figures into the regular rate, so the overtime premium — and the deduction — is based on the (often low) taxable rate, not the blended hourly figure the recruiter quoted.
Who doesn't qualify
- Salaried exempt nurses — nurse managers, many nurse practitioners and CRNAs paid a salary above the FLSA threshold, some educators. No FLSA overtime, no deduction, regardless of hours.
- Overtime required only by state law (California's daily overtime after 8, for example) or only by a union contract, where the hours don't also exceed the federal threshold.
- High earners. The deduction shrinks by $100 per $1,000 of modified AGI over $150,000 ($300,000 joint) and is gone at $275,000 ($550,000 joint). Two-nurse households can get close. Phase-out details.
- Married filing separately. Couples must file jointly.
Worked examples (2026 rates)
Calculate your overtime deduction →
How to claim it
Your 2026 W-2 shows the qualified amount in Box 12, code TT. Enter it in your tax software; it goes to Schedule 1-A, Part III. You don't need to itemize. For 2025, if your employer didn't break it out, the IRS allowed a reasonable estimate from pay stubs. From 2026 on, you can only deduct what's on the W-2 — so if it's missing, get a corrected W-2 from payroll.
Frequently asked questions
Do nurses qualify for No Tax on Overtime?
Hourly nurses do, for FLSA-required overtime (over 40 a week, or 8/80 at hospitals that use it). Salaried exempt nurses don't.
Does 8/80 overtime count?
Yes. The IRS confirmed section 7(j) overtime is qualified overtime compensation.
Do three 12-hour shifts a week generate deductible overtime?
Under 8/80, yes — hours 9–12 of each shift. Under a standard 40-hour week, no, because 36 hours is under 40.
Do shift differentials count?
They raise your regular rate and therefore your overtime premium, but the differential on non-overtime hours isn't deductible.
Is the whole time-and-a-half deductible?
No, only the "half." Base pay for overtime hours is regular wages.
Do travel nurses qualify?
Yes, as W-2 agency employees, based on the taxable hourly wage — not the stipends.