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
