Not necessarily.
The Qualified Overtime Deduction is defined as the “half” portion of “time-and-a-half” compensation that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
As an example, if the employee’s regular rate of pay is $20 per hour and the employee worked one hour of overtime, the employee’s full overtime pay would be $30 ($20 x 1.5). The Qualified Overtime Deduction would be $10.
Even if your union contract negotiated overtime pay of $40 per hour, the Qualified Overtime Deduction would remain $10 because the deduction is defined by what is required by the Fair Labor Standards Act.
Other Qualified Overtime Deduction information:
- Maximum annual deduction is $12,500 ($25,000 for joint filers).
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
- The deduction reduces federal income tax liability, it does not exempt overtime pay from Social Security and Medicare taxes. Employees will still owe these taxes on their overtime earnings.
- Taxpayers filing as married filing separately are not eligible for the deduction.
- The deduction is available for both itemizing and non-itemizing taxpayers.
See this TurboTax Help.
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