This represents the new Overtime Deduction under the One Big Beautiful Bill Act (OBBBA). The following information will help with your federal return. Starting in 2025, Pennsylvania (pa) workers can benefit from federal tax deductions on tips and overtime under new legislation, allowing qualified individuals to deduct up to $25,000 in tips annually through 2028. This federal provision applies to Pennsylvania employees in tipped industries, reducing taxable income on tips and overtime pay.
The overtime description is as follows under the One Big Beautiful Bill Act (OBBBA): 'For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.'
Your employer must meet specific Fair Labor Standards Act (FLSA) requirements to qualify. If your employer doesn't meet these qualifications, then you do not have qualifying overtime.
Steps to Claim the Overtime Deduction
- Verify Eligibility: You must be a non-exempt employee with a valid Social Security number, not filing married separately, with a MAGI below $150k (single) or $300k (joint).
- Locate Overtime Amount: Check Box 14 of your W-2 for "overtime premium" or "OBBB". If not listed, find the total overtime pay on your final 2025 paystub.
- Calculate the Deduction: You can only deduct the premium portion (the "half" in time-and-a-half).
- Time-and-a-half: Divide total overtime pay by 3.
- Double-time: Divide total double-time pay by 4.
- Enter in TurboTax Online or TurboTax Desktop:
- Navigate to the Federal tab and enter your W-2.
- After the W-2 screen, look for the "Let's check for uncommon situations" or similar screen.
- Check the box for Overtime.
- Follow the prompts to enter the calculated premium amount
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