12/27/2025
The One, Big, Beautiful Bill Act (OBBBA) (also referred to as Working Families Tax Cut Act) signed into law on July 4, 2025 has brought along many changes including to overtime pay and taxes.
The no tax on overtime deduction begins with the 2025 tax year. That means you’ll first claim it when you file your tax return in 2026.
Single Filing Status can deduct up to $12,500 of qualified overtime compensation per year
Married Filing Jointly Status can deduct up to $25,000 of qualified overtime compensation per year
𝐖𝐡𝐲 𝐬𝐡𝐨𝐮𝐥𝐝 𝐲𝐨𝐮 𝐬𝐚𝐯𝐞 𝐲𝐨𝐮𝐫 𝐟𝐢𝐧𝐚𝐥 𝐩𝐚𝐲𝐬𝐭𝐮𝐛?
Your overtime premium may appear in different places depending on your employer’s payroll system. Some may:
• Report it in box 14 (Other) on your W-2,
• Include it on a year-end earnings statement, or
• Provide no separate line at all, leaving you to calculate your deductible overtime using your pay stubs or payroll records.
For 2025, employers are not required to provide this separate breakdown so that means many workers won’t receive a clear breakdown of the portion of their overtime pay that counts toward this new deduction. Thankfully, the IRS allows you to calculate your deductible overtime using the information you do have, such as pay stubs, year-end payroll summaries, employer statements, or other documentation.
𝐖𝐡𝐨 𝐪𝐮𝐚𝐥𝐢𝐟𝐢𝐞𝐬 𝐟𝐨𝐫 𝐧𝐨 𝐭𝐚𝐱 𝐨𝐧 𝐨𝐯𝐞𝐫𝐭𝐢𝐦𝐞 𝐝𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧?
The deduction applies to most taxpayers who receive overtime wages under the Fair Labor Standards Act (FLSA). That means:
• Hourly and other non-exempt employees are eligible for this benefit.
• Exempt salaried employees generally do not qualify for this deduction, since they don’t receive overtime under FLSA rules. Non-exempt salaried employees can still qualify, since they are entitled to overtime protections.
• You must have overtime earnings paid at a higher rate than your regular wages.
• A valid Social Security number is required.
• It’s still unclear whether self-employed workers like independent contractors will qualify — as of right now, you’ll still report business income and expenses normally on Schedule C.
*** Please note that these are just some of the general highlights of these deductions and there are many more rules, regulations and considerations going into effect with this new tax law. Remember, each person’s tax/financial situation is different so you should NEVER compare your situation to that of another person.
If you would like more information or need help with any tax matter or topic, please feel free to contact us. We are here to help.
