Save Big on Overtime: Your 2025–2028 Tax Deduction Guide

ByHinali Shah

Keep More of Your Hard-Earned Overtime

Starting in 2025, eligible hourly employees have a new way to save on federal taxes: the overtime tax deduction, available through 2028. This deduction applies to the “premium” portion of overtime pay—the additional half of your time-and-a-half rate—helping you keep more of what you earn.

Key Details of the 2025–2028 Overtime Deduction

  1. Maximum deduction: $12,500 for single filers; $25,000 for joint filers.
  2. Applicable years: Tax years 2025 through 2028.
  3. Above-the-line deduction: Reduces your AGI even if you don’t itemize, making it a straightforward way to increase take-home pay.

Who Can Benefit

To qualify for this deduction:

  1. You must be a non-exempt, hourly employee under the Fair Labor Standards Act (FLSA).
  2. You must work over 40 hours per week and earn overtime pay.
  3. Your modified adjusted gross income (MAGI) must be below $150,000 (single) or $300,000 (joint).
  4. You need a valid Social Security number, and your employer must report overtime correctly on your W-2.

Following these requirements can lead to substantial tax savings each year.

How to Claim the Overtime Deduction

  1. Check your W-2: Qualifying overtime may appear in Box 14 or a supplemental statement.
  2. Claim it on your tax return: Use it as an above-the-line deduction to reduce AGI, even if you take the standard deduction.
  3. Save documentation: Keep pay stubs and statements for verification.
  4. Verify employer reporting: Ensure payroll accurately reports overtime to avoid issues with the IRS.

Pro Tip: Proper documentation ensures you maximize your deduction and avoid complications later.

Why This Deduction Matters

For instance, if you earn $10,000 in overtime, the “premium” portion could be $5,000. Deducting this reduces taxable income, potentially saving hundreds of dollars in federal taxes annually. Over four years, these savings can add up to thousands of dollars.

FAQs

  1. Do I need to itemize to claim this deduction?
    No. This is an above-the-line deduction, so it works even if you take the standard deduction.
  2. Can salaried employees claim this deduction?
    No. Only non-exempt hourly employees earning overtime under FLSA qualify.
  3. When is this deduction available?
    For tax years 2025–2028, beginning with the 2025 tax year (filed in 2026).

Action Steps to Maximize Your Savings

  1. Review pay stubs to confirm overtime is reported correctly.
  2. Track your overtime premium for accurate deductions.
  3. Claim the deduction on your tax return each year to reduce AGI.
  4. Keep documentation safely in case of IRS questions.

By understanding and claiming this deduction, you can maximize your take-home pay and benefit from federal overtime tax relief for the next four years.

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