Taxes on Overtime: New Deduction You Should Know (2025–2028)

Nov 17

If you expect to work overtime in the next few years, here’s some good news: Starting in 2025, you may qualify for a new tax deduction specifically for overtime pay. This provision applies through 2028 and is designed to give workers a little extra relief when they put in extra hours.

What’s This New Deduction About?

When you work overtime, you typically earn time-and-a-half—your regular hourly wage plus an extra 50%. Under the new rule, you may deduct the “premium portion” of your overtime pay.

That means you can deduct just the extra half-time amount, not the full overtime wage.

Example

If your regular rate is $20/hour and your overtime rate is $30/hour, that extra $10 per hour (the “premium portion”) is what may be deductible.

Who Is Eligible?

To qualify:

Your overtime must be required by the Fair Labor Standards Act (FLSA).
You must have earned overtime, not bonuses or other additional pay.
Your filing status and income will determine your deduction limits.

How Much Can You Deduct?

The deduction is capped at:

$12,500 – Single or Head of Household
$25,000 – Married Filing Jointly
$0 – Married Filing Separately

There is also an income limit:

The deduction phases out once your income exceeds $150,000.

Real-Life Example

Let’s break it down with simple math.

Jane is a single filer.

Regular pay: $20/hour
Overtime pay: $30/hour (time-and-a-half)
Overtime hours worked: 200 hours
Total overtime pay: $30 × 200 = $6,000
Premium portion: $10 × 200 = $2,000

Under the 2025 rule, Jane may deduct $2,000 from her taxable income.

Why This Matters

Overtime is often a big part of many workers’ income. This new deduction is designed to keep more money in your pocket during years when you’re putting in extra effort. If you regularly work overtime—or expect to—this could reduce your taxable income and lower your total tax bill.

Heather Cavitt