Tax on OT - filing

[Agwoods11]

What is the difference of filling married-jointly or married-seperatley with the following scenario;

One works 80 plus hours a week.

On payroll - makes 160k/year.

The other owns a business and makes 75k/year.

Which is the best way to file; married - jointly or married-seperatley for the best tax on OT benefits?

[RyanH5]

For tax years 2025 - 2028, taxpayers may be allowed to deduct up to $12,500 ($25,000 if filing jointly) for qualified overtime pay. The deduction phases out for taxpayers with modified adjusted gross income (MAGI) greater than $150,000 ($300,000 for joint filers). The phaseout is a reduction of $100 of the deduction for every $1,000 of income over the $150,000/300,000 threshold. This will be a "below the line" deduction, meaning it will not reduce your adjusted gross income that is used for many other tax calculations.

The amount that will be deductible is the amount of pay that exceeds your regular rate of pay for time worked in excess of 40 hours in one week. For most individuals, it will be the "half" in "time-and-a-half".

To be eligible for the deduction, taxpayers must have a Social Security number (ITINs are excluded), and if married, must file a joint return.

Employers will need to report the annual amount of overtime compensation received at the end of the year on an information return. (W-2, 1099, etc.)

[dburns1]

Under the new tax law, married couples who choose the Married Filing Separately status are not eligible to claim the "No Tax on Overtime" deduction. This deduction, part of the One Big Beautiful Bill Act (OBBBA), allows eligible workers to reduce their federal income tax liability by excluding a portion of their qualified overtime pay from their taxable income. 

The new provision for overtime introduces a deduction for qualified overtime income up to $12,500 for tax years 2025 through 2028 and phases out for income above $300,000 for Married Filing Jointly. 

[xmasbaby0]

If one of you is a W-2 employee and one of you is self-employed, then you are trying to compare apples and oranges when you ask which filing status is better for the OT tax.    The self-employed spouse will still prepare a Schedule C for business expenses and pay self-employment tax for Social Security and Medicare.  You do not get "overtime" pay if you are self-employed.    The W-2 employee who gets overtime can get some credit for the overtime and not pay tax on all of it.

If you are legally married at the end of 2025 your filing choices are married filing jointly or married filing separately when you prepare your 2025 return next year.

Married Filing Jointly is usually better, even if one spouse had little or no income. When you file a joint return, you and your spouse will get the married filing jointly standard deduction of $31,500 (+ $1600 for each spouse 65 or older)  for 2025. You are eligible for more credits including education credits, earned income credit, child and dependent care credit, and a larger income limit to receive the child tax credit. 

If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. Your tax rate will be higher than on a joint return.

 Some of the special rules for filing separately include: you cannot get earned income credit, education credits, adoption credits, or deductions for student loan interest. A higher percent of your Social Security benefits may be taxable. Your limit for SALT (state and local taxes and sales tax) will be only $5000 per spouse. In many cases you will not be able to take the child and dependent care credit. The amount you can contribute to a retirement account will be affected. If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. ( Community property states:  AZ, CA, ID, LA, NV, NM, TX, WA, WI)

 If  you are using online TurboTax to prepare your returns, you will need to prepare two separate returns and pay twice since with online, you get one return per fee.

https://turbotax.intuit.com/tax-tips/marriage/should-you-and-your-spouse-file-taxes-jointly-or-separ...

https://ttlc.intuit.com/turbotax-support/en-us/help-article/income/getting-married-mean-taxes/L2Rgma...