Keep More of Your Hard-Earned Overtime

Starting in 2025, eligible hourly employees can benefit from the overtime tax deduction, available through 2028. This deduction targets the extra “premium” portion of overtime pay—the half above your regular hourly rate—so you keep more of what you earn.

Key Details of the Overtime Deduction (2025–2028)

  1. Maximum Deduction: $12,500 for single filers; $25,000 for joint filers
  2. Applicable Years: 2025–2028
  3. Above-the-Line Deduction: Reduces AGI even if you claim the standard deduction, helping increase take-home pay

Who Qualifies

To take advantage of this deduction, you must:

  1. Be a non-exempt, hourly employee under the Fair Labor Standards Act (FLSA)
  2. Work over 40 hours per week and receive overtime pay
  3. Have a modified AGI below $150,000 (single) or $300,000 (joint)
  4. Possess a valid Social Security number and ensure your employer reports overtime correctly on your W-2

Meeting these criteria can provide significant federal tax savings year after year.

How to Claim the Overtime Deduction

  1. Check Your W-2: Qualifying overtime may appear in Box 14 or a supplemental statement.
  2. Claim on Your Tax Return: Apply as an above-the-line deduction to reduce AGI, even if you take the standard deduction.
  3. Keep Documentation: Save pay stubs and employer statements for verification.
  4. Verify Employer Reporting: Confirm payroll reports overtime correctly to avoid IRS issues.

Pro Tip: Accurate documentation ensures you maximize savings and prevents complications with the IRS.

Why This Deduction Matters

Consider an example: if you earn $10,000 in overtime, the “premium” portion could be $5,000. Deducting this amount lowers your taxable income and could save hundreds in federal taxes annually. Over four years, these savings can add up to thousands of dollars.

FAQs

  1. Do I need to itemize to claim this deduction?
    No. This works even if you take the standard deduction.
  2. Can salaried employees claim this deduction?
    No. Only non-exempt hourly employees earning overtime under FLSA are eligible.
  3. When is this deduction available?
    Applicable for tax years 2025–2028, starting with the 2025 tax year filed in 2026.

Action Steps to Maximize Your Savings

  1. Review pay stubs to ensure overtime is reported correctly
  2. Track your overtime premium for accurate deductions
  3. Claim the deduction every year to reduce AGI
  4. Keep documentation organized in case of IRS questions

By understanding and claiming this deduction, you can maximize your take-home pay and benefit from federal overtime tax relief over the next four years.