01/16/2026
The Big Beautiful Bill
Topic on “overtime” Tax
How it Works
Who Qualifies: Non-exempt W-2 employees covered by the Fair Labor Standards Act (FLSA).
What's Deductible: Only the extra "half" in "time-and-a-half" pay (e.g., if you earn $20/hr regular, the $10/hr premium on overtime is deductible).
Limits: Up to $12,500 annually ($25,000 for joint filers).
Phase-Out: Deduction reduces for incomes above $150,000 (single) or $300,000 (joint).
Reporting: Employers must report this qualified overtime on your W-2.
Key Takeaways
Not Tax-Free: It's a deduction (lowers taxable income), not a credit (dollar-for-dollar reduction).
Payroll Taxes Still Apply: Social Security, Medicare, and state/local taxes are still owed on overtime pay.
Temporary: This deduction is only for tax years 2025-2028.
https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors #:~:text=%E2%80%9CNo%20Tax%20on%20Overtime%E2%80%9D%20New%20deduction:%20Effective,income%20over%20$150%2C000%20($300%2C000%20for%20joint%20filers).
FS-2025-03, July 14, 2025 — Provisions from the One, Big, Beautiful Bill Act, which was signed into law on July 4, 2025.
