The new overtime deduction
| Filing status | Maximum deduction | Years available |
|---|---|---|
| Single | $12,500 | 2025-2028 |
| Married filing jointly | $25,000 | 2025-2028 |
Source: Internal Revenue Service
For tax years 2025 through 2028, you can deduct the premium portion of qualified overtime pay, the “half” in time-and-a-half required by the Fair Labor Standards Act (FLSA). For example, if you earn $20/hour and work overtime at $30/hour, only the extra $10/hour—the premium—counts toward the deduction, not the full $30.
Note: The deduction phases out above $150,000 ($300,000 for joint filers).
What still gets taxed
The deduction only applies to federal income tax. Social Security and Medicare (FICA) taxes will still be withheld from your overtime earnings. If your state doesn’t conform to the federal law, you may still owe state income tax on your overtime wages.
Why your paycheck withholding hasn’t changed
Payroll withholding tables haven’t been updated to reflect the deduction, so your take-home pay from each overtime shift looks the same as before. The benefit shows up when you file your tax return, either as a bigger refund or a smaller balance due.
What counts as qualified overtime
Only overtime required under the FLSA counts; generally the premium paid for hours worked beyond 40 in a week. Overtime required solely by state law, a union contract, or company policy doesn’t qualify for the federal deduction.
