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 the path above.
📘 Examples
Andrew
- Overtime Type: Time‑and‑a‑half
- Total Overtime Pay: $15,000
- Premium Calculation: $15,000 divided by 3 equals $5,000
- Deduction: $5,000
Brad
- Overtime Type: Double‑time
- Total Overtime Pay: $20,000
- Premium Calculation: $20,000 divided by 4 equals $5,000
- Deduction: $5,000
Maria
- Overtime Type: Time‑and‑a‑half
- Total Overtime Pay: $40,000
- Premium Calculation: $40,000 divided by 3 is approximately $13,333
- Deduction: $12,500 cap
🧾 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.