What changed in 2025?

• A new tax law allows a deduction for qualified overtime income.
• You can claim a deduction of up to $12,500 (single) or $25,000 (married filing jointly).
• Both itemizing and non-itemizing taxpayers are eligible to take this deduction.

IMPORTANT: Social Security and Medicare taxes still apply (this only affects income tax).

What counts as eligible overtime pay?

You can claim this deduction if:

• You're an employee (W-2).
• You worked over 40 hours in a week.
• You were paid a higher rate for those extra hours.

Tax Year 2025 transition: If your W-2 doesn't show overtime separately, use pay stubs to total the extra part. Employers may report qualified overtime on W-2 Box 14 or a separate statement while IRS finalizes new reporting rules for 2025.

You can claim this deduction for the “extra half” of overtime pay that’s required by the Fair Labor Standards Act (FLSA) and reported on your Form W-2, Form 1099, or another specified statement.

How to Calculate

Deduct only the extra part of your overtime pay. For example:

• Regular pay: $20/hr
• Overtime pay: $30/hr
• Extra per hour: $10 ($30 - $20)
• 10 overtime hours × $10 = $100 deductible overtime pay

What doesn't qualify?

You can't claim this deduction if:

• Extra hours paid at the same rate as regular pay.
• Married Filing Separately.
• Amounts over the cap ($12,500 /$25,000).
• You are a salaried worker (unless you are non-exempt and are actually paid overtime at a higher rate).

Only overtime required by federal FLSA qualifies — state or union overtime rules don’t count.

Income limits

• Phaseout starts above $150,000 (single/HoH) or $300,000 (MFJ).
• Reduce deduction by $100 for each $1,000 over the threshold.

Expiration

Applies through tax year 2028, unless extended.

Related Links

• New Tax Bill (2025)

NOTE: This new tax bill was signed into law on July 4, 2025. The One Big Beautiful Bill Act (OBBB or OB3) is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used, but they refer to the same set of tax changes.