The rules in brief
| Details | |
|---|---|
| What’s deductible | “Qualified overtime compensation”: the premium portion of overtime pay required by the FLSA (e.g. the extra $12.50 on a $37.50 time-and-a-half hour for a $25/hour worker) |
| Maximum | $12,500 a year; $25,000 for married filing jointly |
| Income phase-out | Reduced by $100 for each $1,000 of modified AGI above $150,000 ($300,000 joint) |
| Tax years | 2025-2028 |
| Taxes it reduces | Federal income tax only: Social Security and Medicare still apply |
| Itemizing required? | No: available whether you take the standard deduction or itemize |
| Filing status | Married couples must file jointly; a valid Social Security number is required |
What doesn’t qualify
- Your regular rate for overtime hours (only the premium counts).
- Overtime premiums paid only because of state law or a union contract, beyond what the FLSA requires.
- Pay for exempt (salaried, overtime-exempt) employees.
Example
You earn $25/hour and work 8 overtime hours a week for 40 weeks: overtime premium = $12.50 × 8 × 40 = $4,000. If you’re in the 12% bracket, the deduction saves about $480 of federal income tax.
How to claim it
Employers report qualified overtime separately on your W-2, and you claim the deduction on your tax return. You can also update your W-4 to have less tax withheld during the year if you expect the deduction. Use our overtime calculator to estimate yours.
State taxes
Most states don’t automatically follow this deduction. Check your state’s rules.
