02/04/2026
Quick reminder:
For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
- Maximum annual deduction is $12,500 ($25,000 for joint filers).
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
What we're seeing in practice is that employers pay overtime correctly but not separately identify the portion that counts as “qualified overtime” for the new deduction. The IRS has given employers a transition year for 2025, so many are skipping optional Box 14 reporting or separate overtime statements altogether.
If you received overtime pay in 2025, be sure to review your W2 and last pay stub for 2025 closely, and discuss this with your tax preparer.
Feel free to reach out with any questions you may have.
https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-individuals-who-received-tips-or-overtime-during-tax-year-2025