After entering your W-2 income, continue through the screens where you will be asked about Uncommon Tax Situations. One of the options is entering overtime compensation eligible for the deduction. This may be reported in box 14 by some employers or found on your final paystub of 2025.
Individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay, generally, the “half” portion of “time-and-a-half” compensation, that’s required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
- 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 is available for both itemizing and non-itemizing taxpayers
One, Big, Beautiful Bill: How to take advantage of no tax on tips and overtime
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