The 2025–2028 Overtime Tax Deduction: Who Qualifies and How to Make the Most of It

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A Fresh Tax Break for Hourly Workers

Starting in 2025, hourly employees who regularly work overtime can enjoy a new federal tax deduction that helps reduce their taxable income. This incentive, introduced under the One Big Beautiful Bill Act (OBBBA), runs through 2028, giving workers four consecutive years of potential savings.

What Exactly Is the Overtime Deduction?

The new deduction targets the “half” portion of the time-and-a-half overtime rate required under the Fair Labor Standards Act (FLSA).
Here’s a breakdown of how it works:

  • You can deduct up to $12,500 individually or $25,000 if filing jointly.
  • It applies to tax years 2025 through 2028.
  • It’s an above-the-line deduction, so even taxpayers who take the standard deduction can still claim it.

This change aims to reward hardworking employees putting in extra hours by easing their tax burden.

Who Can Qualify?

Not everyone will qualify for this new deduction, but many hourly workers will. You’re eligible if you:

  1. Are a non-exempt, hourly employee covered under FLSA.
  2. Work more than 40 hours per week and receive overtime pay.
  3. Earn less than $150,000 (single) or $300,000 (joint) in modified adjusted gross income.
  4. Have a valid Social Security number, and your employer correctly reports your overtime on your W-2 form.

If this sounds like you, you could be on your way to meaningful annual tax savings.

How to Claim the Overtime Deduction

Claiming your deduction will be simple once the new rule takes effect. Here’s what to do:

  1. Check your W-2 form – for 2025, overtime details will be shown in Box 14 (and in a dedicated section beginning in 2026).
  2. File your deduction when you submit your 2025 tax return in early 2026.
  3. Keep all pay stubs and overtime records for verification.
  4. Confirm with your employer that payroll systems are updated for the 2025 reporting format.

Pro tip: a few minutes of preparation now can save you hundreds—or even thousands—later.

Why It Matters

This new federal deduction is more than just a tax update—it’s a well-earned benefit for America’s workforce. By lowering taxable income, workers can hold onto more of what they earn. For instance, someone who earned $10,000 in overtime could deduct $5,000, reducing their taxable income and potentially saving hundreds in federal taxes.

FAQs About the Overtime Deduction

  1. Do I need to itemize deductions to claim it?
    No. This deduction is above the line, which means you can claim it even if you take the standard deduction.
  2. Are salaried employees eligible?
    Unfortunately, no. Only non-exempt hourly employees who receive overtime pay under FLSA qualify.
  3. When can I claim this deduction?
    You’ll claim it when filing your 2025 federal tax return—during the 2026 filing season.

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