Overtime and making over 150K

 Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (such as the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.

• Maximum annual deduction is $12,500 ($25,000 for joint filers).
• Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

The deduction phases out $100 for every $1,000 above the income level.  For example, if you make $155,000, you deduction would decrease $500.  

Yes, the "no tax on overtime" under the One Big Beautiful Bill is pro-rated. It is a deduction to income, and the deduction phases out at modified adjusted gross income of $150,000 ($300,000 for joint filers). You can deduct up to $12,500 ($25,000 for joint filers) of qualified overtime compensation.

 

• Max deduction: $12,500 ($25k for joint filers)
• Max income: $275,000 ($550k for joint filers)
• Phase out begins at income greater than: $150,000 ($300,000 for joint filers)
  • This means that only filers with income less than $150k/$300k can get the full $12.5k deduction. For every $1,000 of income greater than $150k/$300k, the maximum deduction is reduced by $100.

Qualified Overtime Compensation
Only the extra half-time premium paid is deductible. In other words, if your hourly rate is $20p/h, and your overtime rate is $30p/h, then only the $10p/h premium is deductible.

 

Important Notes

• Effective years 2025 - 2028
• This deduction only applies to federal income tax
• The deduction does not apply to FICA (Social Security and Medicare taxes)
• State and local jurisdictions may have separate treatment