How to Claim the 2025–2028 Overtime Tax Deduction and Maximize Your Savings

Maximize Your Tax Savings with the New Overtime Deduction

Starting in 2025, hourly employees who work overtime can take advantage of a new federal tax deduction under the One Big Beautiful Bill Act (OBBBA). This deduction will be available through 2028, allowing employees to reduce taxable income and save more from their overtime earnings.

Key takeaway: This deduction applies to the “premium” portion of your overtime pay—the extra half of your time-and-a-half rate—helping hardworking employees lower federal taxes.

What You Need to Know About the Overtime Tax Deduction

1. Deduction limits: Up to $12,500 for individuals; $25,000 for joint filers.
2. Tax years covered: 2025 through 2028.
3. Above-the-line deduction: Claimable even if you take the standard deduction.

This makes it a simple yet powerful way to keep more of your earned overtime.

Who Qualifies for the Overtime Tax Deduction?

To qualify:

1. You must be a non-exempt, hourly employee under the Fair Labor Standards Act (FLSA).
2. You must work over 40 hours per week and earn overtime pay.
3. Your modified adjusted gross income (MAGI) must be below $150,000 (single) or $300,000 (joint).
4. You must have a valid Social Security number, and your employer must correctly report overtime on your W-2.

Meeting these requirements can result in substantial annual tax savings.

Step-by-Step: How to Claim the Overtime Deduction

1. Check your W-2: Employers typically report qualified overtime in Box 14 or a supplemental statement.
2. Report on your tax return: Include it as an above-the-line deduction to reduce your AGI, whether or not you itemize.
3. Keep documentation: Save pay stubs and employer statements for verification.
4. Verify payroll reporting: Ensure your employer reports overtime correctly according to IRS rules.

Pro tip: Proper documentation now prevents issues and maximizes your potential savings.

Why This Deduction Matters

Example: If your overtime pay totals $10,000, you could deduct $5,000 (the “premium” portion), lowering taxable income and potentially saving hundreds in federal taxes. Over four years, this could mean thousands in tax savings.

FAQs About the Overtime Tax Deduction

1. Do I need to itemize to claim it?
   No. This is an above-the-line deduction, so it works even with the standard deduction.
2. Can salaried employees claim this deduction?
   No. Only non-exempt hourly employees with overtime pay under FLSA qualify.
3. When can I claim the deduction?
   The deduction is available for tax year 2025 onward, filed in 2026, and continues through 2028.