Based on IRS Notice 2025-69 • Public Law 119-21

OvertimeProof

Your overtime. Your proof. Your money.

The free audit-ready report every overtime worker needs.

100% free • No data collected • All calculations run in your browser

Step 1: Eligibility Check

Let's verify you meet the requirements for the overtime deduction under the FLSA and IRC.

What Is the Overtime Tax Deduction?

The One Big Beautiful Bill Act (Public Law 119-21, signed July 2025) created a new federal income tax deduction for qualified overtime compensation. If you're an hourly worker who earns overtime, you can deduct the premium portion of that overtime pay from your taxable income.

This is a deduction from federal income tax only. Social Security, Medicare, and state/local taxes still apply. But it can put hundreds to thousands of dollars back in your pocket every year through 2028.

Who Qualifies?

You qualify if all of these are true:

  • You're a non-exempt employee who receives FLSA-required overtime (typically hourly workers paid 1.5x+ for hours over 40/week)
  • Your overtime is required by federal law (FLSA), not just company policy
  • You have a valid Social Security number
  • If married, you file jointly (MFJ) with your spouse
  • Your MAGI is under $275,000 (single) or $550,000 (MFJ)
Common qualifying jobs: warehouse workers, nurses (non-exempt), truck drivers, factory workers, retail employees, construction workers, restaurant workers, mechanics, healthcare aides, call center workers, and most other hourly positions.
Usually don't qualify: salaried managers, executives, lawyers, doctors, engineers, IT professionals, and other FLSA-exempt roles. Also: self-employed, freelancers, and gig workers.

What Gets Deducted — The Key Detail

It's not your entire overtime paycheck. Only the premium above your regular rate — the "half" in time-and-a-half — qualifies.

Example: Time-and-a-Half

Sarah earns $20/hr. Her OT rate is $30/hr (1.5x). Only the extra $10/hr is deductible.

300 OT hours × $10 = $3,000 deduction → saves ~$660 at 22% bracket.

Example: Double-Time

Mike earns $25/hr. Double-time is $50/hr. But the FLSA only requires 1.5x, so only the $12.50/hr FLSA premium qualifies (not the full $25 extra).

200 OT hours × $12.50 = $2,500 deduction.

Deduction Limits & Phase-Out

Maximum deduction: $12,500 per person ($25,000 married filing jointly).

Single — full deduction below$150,000
Single — fully phased out at$275,000
MFJ — full deduction below$300,000
MFJ — fully phased out at$550,000

Reduction: $100 per $1,000 of MAGI over the threshold.

How to Claim It

  • Gather pay stubs showing overtime hours, rates, and premium amounts
  • Calculate your overtime premium using OvertimeProof or the IRS methods
  • File Schedule 1-A (Additional Deductions) with your Form 1040
  • Works with the standard deduction — no need to itemize
  • Keep records for 6 years — pay stubs, W-2s, employer statements
For 2025: Employers aren't required to report OT separately. Save every pay stub. Some employers may voluntarily report in W-2 Box 14.
For 2026+: Employers must report qualified OT on W-2s, making this much easier.

Taxes That Still Apply

  • Social Security (6.2%) — still withheld from overtime
  • Medicare (1.45%) — still withheld from overtime
  • State income tax — most states still tax overtime
  • Local taxes — city/county taxes still apply

Frequently Asked Questions

I'm salaried but sometimes get overtime. Do I qualify?
It depends on your FLSA classification. Some salaried workers are "non-exempt" and receive FLSA-required overtime — they qualify. Most salaried professionals, managers, and executives are "exempt" and don't qualify. Check with your HR department.
Does this mean my paycheck gets bigger right away?
Not immediately. Employers still withhold federal income tax from your overtime. You claim this deduction when you file your tax return — resulting in a larger refund or less tax owed. For 2026+, you can update your W-4 to adjust withholding.
I work two jobs. Can I combine overtime from both?
Each job is evaluated separately under the FLSA. Overtime at one employer (hours over 40/week at that employer) qualifies. Hours from different employers aren't combined for FLSA purposes.
My state requires daily overtime (like California). Does that count?
Only if the overtime is also required under the federal FLSA (over 40 hours in a workweek). State-only daily overtime requirements don't qualify on their own.
I'm a gig worker / freelancer. Do I qualify?
No. The FLSA applies to employees, not independent contractors. Gig workers and self-employed individuals don't receive FLSA-required overtime and aren't eligible.
How long does this deduction last?
Tax years 2025 through 2028 (4 years). Congress would need to extend it beyond 2028.
My pay stub shows one lump overtime amount. What do I do?
If it's time-and-a-half total, divide by 3 to get the deductible premium. For double-time total, divide by 4. Example: $15,000 total OT at 1.5x = $15,000 ÷ 3 = $5,000 deductible. OvertimeProof does this for you.
What records should I keep and for how long?
Keep all pay stubs, W-2s, payroll summaries, and any employer statements about your overtime. Per IRC §6001 and §6501, keep these for at least 3 years (standard statute), but we recommend 6 years since the extended statute applies if income is underreported by 25%+. This is a new deduction and may draw IRS attention — better safe than sorry.
What happens if I get audited on this deduction?
The IRS would verify: (1) your FLSA non-exempt status, (2) that you actually worked overtime hours, (3) that you calculated the premium correctly, and (4) that your income is within the phase-out limits. Having organized records — pay stubs, employer confirmation of FLSA status, and calculation worksheets — is your best defense. Your OvertimeProof report helps you prepare.
Can both spouses claim it?
Yes. Filing jointly, each spouse with qualifying OT can claim up to $12,500, for a combined max of $25,000. You must file jointly.

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Why This Year Is Different

2025 is the first tax year with the overtime deduction, and it comes with unique challenges. Employers aren't required to report qualified overtime separately on W-2s yet. The IRS is still publishing final forms and instructions. And this is a brand new line item that examiners will be learning alongside taxpayers.

For many workers, this could be the year that tips the scale from "I can do this myself" to "I should probably talk to someone who does this for a living."

OvertimeProof helps you understand your numbers — but a tax professional can make sure everything on your return is optimized, not just overtime.

Quick Quiz: Should You Hire a Tax Pro This Year?

Answer these 6 questions. Takes about 10 seconds.

1. Do you own a business or have self-employment income?

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