Field guide
No Tax on Overtime Explained: 2025–2028 Deduction
How the No Tax on Overtime rule works under the OBBBA: what qualifies, the $12,500 / $25,000 caps, phase-outs, and how to claim it on your tax return.
What the rule actually does
Starting with the 2025 tax year, federal law lets you deduct the overtime premium you earned — but only for tax years 2025 through 2028. Overtime is still taxed normally in your paycheck. The benefit comes when you file your return: you subtract the qualifying overtime premium from your federal taxable income, which lowers the tax you owe or raises your refund.
Only the extra half qualifies
Overtime is usually paid at time-and-a-half — 1.5× your regular rate. Only the premium portion above your regular rate qualifies for the deduction: the extra 0.5×. If you earn $20/hour and get $30/hour for overtime, only the $10 premium per overtime hour counts. The regular-rate portion of overtime pay is treated like any other wages.
Caps and income phase-outs
You can deduct up to $12,500 of qualified overtime per year if you are single, or $25,000 if married filing jointly. The deduction starts phasing out above $150,000 modified adjusted gross income ($300,000 joint) and is fully eliminated at $250,000 ($400,000 joint). The joint amount requires a valid Social Security number for both spouses and a joint return.
What overtime qualifies
Only overtime required by federal law under the Fair Labor Standards Act — generally hours worked over 40 in a workweek for non-exempt (hourly) employees. Overtime your employer pays only because of state law, a union contract, or company policy does not count. Salaried exempt employees generally do not earn FLSA overtime at all.
How to claim it on your return
For 2025, your employer is not required to report overtime separately — you calculate the deduction yourself and claim it on Schedule 1-A when you file. Report the figures and keep records of your overtime hours and rates. The deduction is available whether you take the standard deduction or itemize.
Frequently asked questions
Does overtime still show as taxed on my W-2?
Yes. Overtime is included in your wages, and federal income tax, Social Security, and Medicare are withheld as usual. The No Tax on Overtime deduction happens on your tax return, not in your paycheck.
Is this the same as eliminating FICA taxes on overtime?
No. The deduction applies only to federal income tax. Social Security and Medicare taxes on overtime are unchanged.
When does the overtime tax break end?
The deduction applies to tax years 2025 through 2028 only. Unless Congress extends it, overtime premium pay returns to normal federal income tax treatment after 2028.
Open the No Tax on Overtime Calculator →
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