2025–2028 Overtime Tax Savings Guide

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 targets the “premium” portion of your overtime pay—the additional half of your time-and-a-half rate—allowing you to 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: 2025 through 2028.
3. Above-the-line deduction: Works even if you don’t itemize deductions.

This makes it a simple, effective way to increase your take-home pay without extra work.

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 more than 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.

Meeting these requirements could result in substantial tax savings each year.

How to Claim the Overtime Deduction

1. Review your W-2: Employers may report qualifying overtime in Box 14 or on a supplemental statement.
2. Include on your tax return: Claim it as an above-the-line deduction to reduce AGI, regardless of whether you itemize.
3. Save documentation: Keep pay stubs and statements for verification.
4. Confirm employer reporting: Make sure your payroll team is reporting overtime correctly.

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

Why This Deduction Makes a Difference

Example: If you earn $10,000 in overtime, the “premium” portion could be $5,000. Deducting this reduces taxable income, potentially saving hundreds in federal taxes annually. Over four years, these savings can accumulate into thousands of dollars.

FAQs

1. Do I need to itemize to claim this deduction?
   No. It’s an above-the-line deduction, so it works even with the standard deduction.
2. Can salaried employees claim this deduction?
   No. Only non-exempt hourly employees with overtime pay under FLSA qualify.
3. When is this deduction available?
   For tax years 2025 through 2028, starting with the 2025 tax year (filed in 2026).