IRC §225 · Qualified overtime
No Tax on Overtime Deduction
Short answer
For tax years 2025 through 2028, eligible taxpayers may deduct up to $12,500 of qualified overtime compensation, or up to $25,000 on a joint return.
The deduction generally covers the premium above the regular rate that is required by the federal Fair Labor Standards Act—not every dollar earned during overtime hours.
Key facts
The figures and limits at a glance
Maximum deduction
$12,500
$25,000 for a joint return. The joint limit is per return, not per spouse.
Available years
2025–2028
The temporary deduction applies to qualified overtime compensation during these tax years.
Phaseout begins
$150k / $300k
MAGI threshold for non-joint returns / married filing jointly.
Primary authority
Open the sources behind the answer
IRC §225 — Qualified overtime compensation
The controlling Code section for the qualified-overtime deduction.
IRS qualified-overtime questions and answers
IRS guidance explaining which overtime is eligible and how the deduction works.
IRS Schedule 1-A guidance
The IRS filing guidance for the qualified-overtime deduction and its limits.
Only the qualifying overtime premium is deductible
Qualified overtime compensation is the amount paid above the employee’s regular rate as required by section 7 of the Fair Labor Standards Act. With standard time-and-a-half pay, that generally means the extra half-time premium—not the employee’s full overtime wages.
- →Overtime paid only because of state law, a union agreement, or an employer policy does not qualify unless it is also required by the federal FLSA rule.
- →If a worker receives a larger premium, the deduction still focuses on the amount required under the FLSA.
- →The compensation remains reportable wages and generally remains subject to employment taxes.
Who can claim the deduction
An eligible individual may claim the deduction whether itemizing or using the standard deduction. The taxpayer must satisfy the identification, filing-status, reporting, and income rules in IRC §225.
- →The individual receiving the qualified overtime must have a valid Social Security number.
- →Married taxpayers must file a joint return to claim the deduction.
- →The deduction is reduced when modified adjusted gross income exceeds $150,000, or $300,000 for a joint return.
Questions and answers
What practitioners ask next
Does the deduction cover all overtime pay?
No. It covers qualified overtime compensation required under section 7 of the FLSA, generally the premium above the employee’s regular rate. It does not generally cover the regular-pay portion of overtime hours.
What is the maximum overtime deduction?
The maximum is $12,500 per individual return or $25,000 on a joint return, before the income phaseout.
Is overtime exempt from payroll tax?
No. The provision is an income-tax deduction. Qualified overtime generally remains wages for withholding, Social Security, Medicare, and unemployment-tax purposes.
Can a taxpayer claim the deduction without itemizing?
Yes. Eligible taxpayers may claim the qualified-overtime deduction whether they itemize or use the standard deduction.
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