You can deduct the ''half'' portion reported on your w-2. Some states have higher standards for reporting overtime, but only the federal rules apply.
Under the new federal "No Tax on Overtime" law (2025–2028), you can only deduct the overtime premium (the "half" in "time-and-a-half") for hours worked over 40 in a workweek that are specifically required by the federal Fair Labor Standards Act (FLSA), up to $12,500 annually ($25,000 for married filing jointly).
- Only FLSA-Required Overtime Qualifies: If your state requires overtime pay after 8 hours in a day (or the 7th consecutive day), but you have not exceeded 40 hours for the week, that daily overtime is not eligible for the federal deduction.
- Voluntary/State-Specific OT: Overtime paid in more circumstances than required by the FLSA (e.g., in California or via union contracts) does not qualify for this specific federal tax deduction.
- The "Premium" Portion: The deduction applies to the extra 0.5x rate (the "half") of the time-and-a-half pay, not the total pay.
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