"No Tax on Overtime" Explained

The No Tax on Overtime provision is a federal income tax deduction that lets eligible employees deduct the premium portion of their overtime wages from taxable income.

📌 This is the “extra half” in time‑and‑a‑half pay.

🔒 Important:

• This is not a tax exemption.
• Overtime pay is still subject to FICA (Social Security & Medicare).

👤 Who Qualifies?

To claim the deduction, taxpayers must meet all of the following:

• ✔ Receive qualified FLSA overtime (hours > 40/week; only the premium portion qualifies) 
• ✔ MAGI limits:
  • Single, Head of Household, or any non‑joint status: Under $150,000 MAGI
  • Married Filing Jointly: under $300,000 
• ✔ Valid SSN must be on the return 
• ✔ If married, must file jointly (MFS not allowed) 

❌ Not allowed for Married Filing Separately

📅 When Does It Apply?

• Applies to overtime earned on or after Jan 1, 2025
• First claimed on 2025 tax returns (filed in 2026)
• Scheduled expiration: Dec 31, 2028 (unless extended)

⏱ What Counts as “Overtime”?

Only the premium portion qualifies:

• For time‑and‑a‑half → the “extra 0.5×”
• For double‑time → the “extra 1×,” but IRS allows only half of that

🧠 Example:
Regular rate: $20/hr
OT rate: $30/hr
Premium = $10/hr → deductible

💰 Maximum Deduction Amounts

• Single: up to $12,500
• Married Filing Jointly: up to $25,000
  A phase‑out applies beyond the MAGI limits.

🧮 How to Calculate the Deductible Amount

⏱ Time‑and‑a‑Half

• Premium portion = ½ regular rate
• Total OT pay = 1.5 × rate

✅ Formula:
Deduction = Total OT Pay ÷ 3

⏱⏱ Double‑Time

• Extra portion = 1 × regular rate
• IRS allows ½ of this extra portion
• Total OT pay = 2 × rate

✅ Formula:
Deduction = Total OT Pay ÷ 4

Apply the Annual Limit

If the calculated premium exceeds the allowed max, enter:

• $12,500 (single)
• $25,000 (MFJ)

🧭 Program Entry Instructions

Path:
Federal → Deductions → Additional Deductions → No Tax on Overtime

🔹 Enter only the premium portion you calculated.
🔴 Do NOT enter the full W‑2 Box 1 amount.

For MFJ

• If both spouses have overtime → combine both premium portions
• Ensure total stays within the $25,000 limit

Box 14 Reminder

Some employers list overtime data in Box 14, but:
⚠ Entering Box 14 alone does NOT generate the deduction.
You must manually enter the amount using this path: Federal → Deductions → Additional Deductions → No Tax on Overtime

🧾 Reporting Requirements (Federal)

🟦 W‑2 Overtime Included in Box 1

✔ Overtime is automatically included in W‑2 wages
❌ Do NOT enter Box 1 anywhere related to this deduction
✔ Enter only the premium portion

🟥 1099‑NEC / 1099‑MISC Income

⚠ These may include overtime
❌ Do NOT enter full 1099 income
✔ Enter only the premium portion tied to overtime work

If the taxpayer has overtime from both W‑2 and 1099:
→ Calculate each separately and combine the premium portions only.

💵 Will This Show Up in Paychecks?

Not for 2025.
Starting in 2026, withholding tables may adjust, which could slightly increase take‑home pay.