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.)
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