The New Overtime Deduction: Clearing Up the “No Tax on Overtime” Myth

Beginning in 2025, eligible workers can deduct up to $12,500 of qualified overtime pay (or $25,000 if married filing jointly). This deduction reduces taxable income, not AGI.

What is “qualified” overtime?

• Only the premium portion of federally required overtime (the “half” in time-and-a-half)
  • Must be overtime under FLSA rules
  • Overtime that employers choose to pay outside legal requirements does not qualify

Income limits

Deduction decreases by $100 for every $1,000 of MAGI over:
• $150,000 (single)
• $300,000 (joint filers)

Documentation matters

For 2025, employers are not required to show qualified overtime on the W-2. You will need to provide:
• Your final paystub
• Any employer overtime statements
• Complete W-2

Bottom line

This deduction can meaningfully reduce taxable income, but the rules are specific—and your documentation is key.