How is the new overtime deduction calculated? The talk is that those making time and half after 80 hours only are able to deduct the extra 50% per hour, not full 1.5.

[tivo44]

This is referring to those that are FLSA non exempt. The question is if I make 15k in OT, is all 15k deductible (ignoring income limits) or is it only 5k (the extra 1/2 time per hour)?

[rjs]

"The talk" is basically correct. Only the additional 50% is deductible. And the total deduction is limited to $12,500 per person. There is no 80 hour requirement. The deduction phases out for MAGI over $150,000 (over $300,000 for Married Filing Jointly filers). And the deduction for overtime is only available for years 2025 through 2028.

[NCperson]

it's only the 1/2 time that is deductible.  Your employer is required to indicate the deductible overtime on the W-2 as new requirement because of the new law. 

[Opus 17]

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@rjs wrote:

"The talk" is basically correct. Only the additional 50% is deductible. And the total deduction is limited to $12,500 per person. There is no 80 hour requirement. The deduction phases out for MAGI over $150,000 (over $300,000 for Married Filing Jointly filers). And the deduction for overtime is only available for years 2025 through 2028.

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If you normally make $20 an hour, and you work 45 hours one week and are paid $30/hr for the last 5 hours, the tax-free portion is the $10/hr overtime x 5 hours. Your base pay is still taxed normally. 

[tivo44]

That is again what I've heard, but does anyone have any links to official govt guidance on this or opinions from Tax experts?  The bill itself did not seem clear and at this point I haven't seen any "official" word.  Moral of the story, only receiving a deduction on the half position is absolutely not how that thing was sold. Making 15k a year in OT (full time and a half) might result in an extra $600 at end of year. That's not nothing, but it's also much less than they sold to the public.

[Opus 17]

The text of the law itself is 

In general.--For purposes of this section, the term 
    `qualified overtime compensation' means overtime compensation paid 
    to an individual required under section 7 of the Fair Labor 
    Standards Act of 1938 that is in excess of the regular rate (as 
    used in such section) at which such individual is employed.

Key here is the amount that is "in excess of the regular rate". 

[rjs · Accepted solution]

@tivo44 

Here's the official word from the IRS. In the IRS Fact Sheet scroll down to "No Tax on Overtime."

IRS Fact Sheet FS-2025-03: Tax deductions for working Americans and seniors

Partial quote from the IRS Fact Sheet:

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

See the Fact Sheet for more details.

[tivo44]

Just what I was looking for, thanks!