"No tax on overtime": what the 2025–2028 deduction really covers
Key points
- Workers can deduct qualified overtime compensation for tax years 2025 through 2028.
- Only the premium portion counts, which is usually the "half" in time-and-a-half.
- The cap is $12,500 per year ($25,000 married filing jointly), with an income phase-out.
What the deduction is
The 2025 federal tax law (often called the One Big Beautiful Bill Act) created a temporary deduction for "qualified overtime compensation" for tax years 2025 through 2028. It reduces federal income tax. It doesn't change Social Security or Medicare taxes, and state treatment varies.
Only the "half" counts
The deduction covers the FLSA-required premium above your regular rate, not your whole overtime paycheck. If your regular rate is $20 and your overtime rate is $30, the $10 premium per overtime hour is what can count.
Limits
- Up to $12,500 per year for single filers, or $25,000 for married couples filing jointly
- The deduction phases out at higher incomes (beginning at $150,000 of modified adjusted gross income for single filers and $300,000 for joint filers)
- It's limited to overtime required by the FLSA. Overtime paid only because of company policy or a state daily-overtime rule may not qualify.
Why this matters for unpaid overtime
Being correctly classified as non-exempt and paid properly now carries an extra federal tax benefit. Misclassified workers miss both the overtime and the deduction. Employers report qualified overtime on Form W-2 beginning with tax year 2026.
This is general information, not tax advice. See IRS guidance or a tax professional for your situation.
See what you could be owed
Estimate unpaid overtime and back pay in under a minute. Free, private, nothing stored.