For tax years 2025 through 2028, eligible workers can deduct certain overtime pay from their taxable income.
This new deduction lets you exclude the overtime premium portion of your pay—the amount paid above your regular rate—when calculating your federal taxes.
This deduction applies to overtime required under the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, or another approved tax statement.
You can claim this deduction whether you take the standard deduction or itemize.
What counts as qualified overtime compensation?
Qualified overtime compensation is only the extra pay above your regular hourly rate.
For most workers paid “time-and-a-half,” that means:
The “half” portion of overtime pay qualifies
Your regular hourly wages do not
Example:
If your overtime rate is 1.5× your regular pay, only one-third of the total overtime pay counts as qualified overtime for this deduction.
How much can I deduct?
For each tax year from 2025–2028, the maximum deduction is:
$12,500 for single filers
$25,000 for married filing jointly
The deduction phases out if your modified adjusted gross income (MAGI) exceeds:
$150,000 (single filers)
$300,000 (joint filers)
Who can claim the deduction?
You may be eligible if all of the following apply:
You received qualified overtime compensation under the FLSA
The overtime was reported on a W-2, 1099, or similar statement
You include your Social Security number on your return
If married, you file jointly
This deduction is available to both:
W-2 employees
Certain 1099 workers who receive FLSA-qualified overtime
Are all workers eligible for overtime?
No. Some employees are exempt from overtime rules under the FLSA, including certain salaried, executive, administrative, and professional roles.
If your job is exempt from FLSA overtime requirements, your pay generally does not qualify for this deduction.
Overtime calculation examples
These examples show how much of your overtime pay may qualify:
Time-and-a-half pay
If your pay stub shows $15,000 in overtime pay, $5,000 qualifies (one-third).Double-time pay
If you were paid $20,000 at 2× your regular rate, $5,000 qualifies (one-fourth).Law enforcement or fire protection schedules
If $15,000 in overtime was paid under approved FLSA work-period rules, $5,000 qualifies.Compensatory time payouts
If $4,500 was paid for comp time earned at 1.5×, $1,500 qualifies.
Only the overtime premium portion is deductible—not the full overtime amount.
How is this reported on my tax forms?
Employers and other payors are required to:
Report the total qualified overtime compensation paid during the year
Provide that amount on your W-2, 1099, or similar statement
The IRS has announced transition relief for tax year 2025 while new reporting systems are implemented.
Key takeaway
From 2025 through 2028, eligible workers can deduct the overtime premium portion of their pay—up to $12,500 ($25,000 joint)—even if they don’t itemize.
Eligibility depends on FLSA rules, income limits, and proper reporting, so reviewing your pay statements is key before claiming the deduction.
This content is provided for informational purposes only and should not be construed as tax, legal, financial, accounting, or other advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need advice specific to you.
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