No Tax on Overtime Bill

New No Tax on Overtime Deduction

Starting in 2025 through 2028, individuals who earn qualified overtime compensation can deduct the portion of their pay that exceeds their standard rate.

This includes the “half” component of “time-and-a-half” payments mandated by the Fair Labor Standards Act (FLSA).

This deduction applies to amounts reported on Form W-2, Form 1099, or other specified documentation provided to the individual.

• The maximum annual deduction is $12,500, or $25,000 for those filing jointly.
• The deduction will phase out for taxpayers with a modified adjusted gross income exceeding $150,000 ($300,000 for joint filers).

Taxpayer Eligibility: This deduction is available to both itemizers and non-itemizers. Taxpayers must:

• Include their Social Security Number on their tax return.
• File jointly if married to be eligible for the deduction.

Reporting Requirements: Employers and other payers must file information returns with the IRS (or SSA) and provide taxpayers with statements detailing the total amount of qualified overtime compensation paid throughout the year.

Why Electronic Filing Is Recommended

Because this is a new deduction with income limits and reporting requirements, electronic filing is strongly recommended.

E-filing helps by:

• Automatically calculating phaseouts based on income

• Correctly separating regular pay from overtime premiums

• Integrating W-2 and 1099 data without manual entry

• Reducing errors that could trigger IRS notices

• Speeding up processing and refunds through direct deposit

Most tax software will guide you step by step and apply the deduction automatically if you qualify.

The new No Tax on Overtime Deduction can provide meaningful tax relief for eligible workers from 2025 through 2028.

Filing electronically and reviewing your wage statements carefully are the best ways to ensure you receive the full benefit allowed under the law.