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No Tax on Overtime - One Big Beautiful Bill Act
Overview of the deduction:
- Effective for tax years 2025 through 2028, individuals may deduct the portion of qualified overtime pay that exceeds their regular rate of pay (for example, the “half” portion of “time-and-a-half”).
- Overtime must be reported on Form W-2, Form 1099, another statement furnished to the individual, or directly by the individual.
- Maximum annual deduction is $12,500 ($25,000 for joint filers).
- Phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
- Only the premium (extra half) of FLSA-mandated overtime pay, not all overtime.
- FICA tax still applies to overtime wages
Who qualifies?
- Taxpayer who:
- Have a Social Security number (SSN)
- Claim itemized or non-itemized deductions
How to claim the deduction:
- Individuals must include their Social Security number on the return.
- Individuals may file jointly if they’re married.
Reporting requirements:
- Employers and other payors must report qualified overtime compensation on IRS (or SSA) information returns
- Treasury and the IRS will provide transition relief for tax year 2025.
