The deduction for overtime pay, 2025 through 2028

How it works

The tax law signed July 4, 2025 (Public Law 119-21) created this deduction for tax years 2025 through 2028. Only the premium counts. That is the half in time and a half, the part of overtime pay above the regular rate that the Fair Labor Standards Act requires for hours over 40 in a workweek. The base pay for those hours does not count, and neither does overtime paid only because a state law, a union contract, or an employer's own policy goes beyond what the federal act requires. The deduction is capped at this year's official overtime deduction cap single (not yet verified here; see the official source below) for a single filer and this year's official overtime deduction cap married (not yet verified here; see the official source below) on a joint return, and it shrinks as modified adjusted gross income rises above this year's official tips overtime phaseout single start (not yet verified here; see the official source below) for a single filer or this year's official tips overtime phaseout married start (not yet verified here; see the official source below) on a joint return. It is taken whether the filer itemizes or takes the standard deduction. The filer needs a valid Social Security number, and a married person has to file jointly to claim it. From 2026, employers report the qualified amount on the wage statement; for 2025, the IRS let workers figure it from pay stubs and other records. It lowers federal income tax only, and Social Security and Medicare tax still apply.

What it gives

It is taken whether the filer itemizes or takes the standard deduction.

A worker with many overtime hours can take a real share of pay out of income tax for four tax years.

From 2026 the qualified amount appears on the wage statement, so it no longer has to be worked out from pay records.

What it costs, or where the catch is

Only the premium counts, so a worker paid $1,500 for overtime hours at time and a half deducts $500, not $1,500.

Exempt salaried workers, and overtime that only a state law or a contract requires, get nothing from it.

It ends after the 2028 tax year and does not lower Social Security or Medicare tax.

A worked example

Marcus earns $30 an hour and works 200 overtime hours in the year at $45 an hour, which is $9,000 of overtime pay. The premium is the extra $15 an hour, so 200 hours at $15 is $3,000. If the cap were $12,500, the full $3,000 would come off his taxable income. At a 22 percent rate that is $3,000 times 0.22, which is $660 less federal income tax. The other $6,000 of his overtime pay is taxed like the rest of his wages.

Where it goes wrong

The common miss is deducting the whole overtime check instead of only the premium, or counting overtime that federal law does not require.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: What to know about the No Tax on Overtime deduction. Every figure that changes by year in How it works comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number. Each worked example uses the figures of the year it names, or says its figures are only supposed.